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The rebound in global oil prices and local production is helping Diamond bank, Nigeria’s sixth largest commercial bank; recover non-performing loans (NPLs) that swelled in the thick of low oil prices in 2016 and militant attacks that cut oil production by a third.
“In the past few months, we have had cash flows from at least three clients that had been docile since 2016 when the slump in oil prices and damages inflicted on the Forcados terminal constrained chances of loan servicing,” Caroline Anyanwu, the bank’s deputy managing director and chief risk officer told BusinessDay during an interview at its Lagos headquarters on Friday.
She declined to name the oil companies in question.
Thanks to the upswing in global prices and local production in Nigeria, oil exploration companies have now gone back to work and owners of rigs and vessels are getting new jobs, according to Anyanwu.
That has breathed life into the bank’s NPLs which had a 36 percent exposure to the oil and gas sector in 2016, as deduced from the company’s financial statements.
“The improved oil NPLs will reflect in our full-year 2017 financial result,” Anyanwu added.
The bank’s full-year 2017 financial report is expected to hit the market by March.
The bank’s share price jumped 2 percent to N2.55 Friday, according to data from Bloomberg.
The lengthy collapse in oil prices which began in mid-2014 led to a corresponding decline in the revenues of Nigerian oil and gas corporates, making it more difficult for them to service their predominantly foreign-currency borrowings.
Nigerian lenders who were heavily exposed to the troubled oil and gas sector had to restructure loans extended to mostly indigenous oil firms last year.
The restructuring has mainly been by increasing loan tenors, allowing struggling clients to pay, based on their cash flow capacity and converting some amortising loans into bullet loans.
Sixty to 70 percent of loans in the oil and gas sector were restructured with prodding from the Central Bank of Nigeria (CBN), according to global credit rating agency, Moody’s Investors Service.
Nigerian banks’ balance sheets are highly dollarised, with foreign-currency-denominated loans constituting around 50 percent of total as of the end of June 2016.
The banks’ exposure to the oil and gas industry is substantial, at around 30 percent of total loans, of which about one-third is to the upstream segment.
Things have however taken a dramatic turn since the rally in oil prices made possible by OPEC’s move to drain a supply glut in the market by shaving some 1.2 million barrels daily off global supply.
Oil prices have more than doubled to $69 per barrel on average this year, from as low as $29 dollars per barrel in January 2016. Nigeria’s benchmark, Brent crude, rose 0.8 percent to $66.9 per barrel Friday, according to Bloomberg data.
Local production has also recovered some lost grounds inflicted by militant attacks in the better part of 2016.
According to OPEC data, Nigeria’s production surged 50 percent to 1.8 million barrels daily in January 2018, from as low as 1.2 million in January 2016.
The loss of Forcados barrels, which pumped an average of 200,000 barrels in 2015 before militancy escalated, had the single biggest impact on oil production out of any grade the country produces. Just as its resumption after a 15-month halt has also had a telling impact on overall production.
This has helped Africa’s largest oil producer put the worst of its first economic recession in a quarter of a century.
The economy expanded 1.4 percent in the third quarter of 2017, according to data by state-funded National Bureau of Statistics.
Buoyed by stronger quarterly average production of 2.03 million barrels daily (mb/pd) (Q3’16: 1.61 mb/d), the oil sector expanded 26 percent year on year in the quarter to lift Nigeria’s GDP.
The recovery has translated to an improving asset quality outlook for the Nigerian banks, given their exposure to the sector.
“We think sector NPLs are close to their peak, and we expect higher oil prices will have direct implications on loan performance,” analysts at Moscow-based investment firm, Renaissance Capital said in a note to clients this month.
LOLADE AKINMURELE & MICHEAL ANI
