Elias Igbinakenzua is the executive director (oil/gas), Access Bank plc. In this interview with Olusola Bello, energy editor, on the sideline of the Nigerian Oil and Gas Conference in Abuja, spoke on willingness of Nigerian banks to finance indigenous players. He also spoke on the challenges of good corporate governance and capability of Nigerian banks in funding project requiring huge capital, provided the promoters have good corporate governance and structures. Excerpts:
What informed the interest of Access Bank in oil and gas financing?
As you know, oil and gas is our mainstay in Nigeria. It contributes over 90 percent foreign exchange to our national revenue annually and it employs the bulk of our people. Any bank that wants to encourage the industry, and add value to the economy must support oil and gas. So, as a bank we have been there from inception. We have encouraged players locally as well as the International Oil Companies (IOCs). It cuts across all the chains of oil and gas companies in the downstream, midstream and upstream. Access Bank is one of the well capitalised Nigerian banks that have the wherewithal to support the Nigerian oil and gas industry. In terms of governance, we have the right framework to access the risks, dimension them and know the extent to go. We have also been able to help our players to understand the risks and know how to perch against them. So, we are a core player and we think that as a key Nigerian stakeholder, we must play big in the oil and gas industry.
You are really concerned about corporate governance as the impediment to funding of projects. What are you doing in this area in terms of making indigenous to be more corporate governance conscious and to be efficient?
The theme of the panel session at the Nigeria Oil and Gas Conference was actually to look at the independent oil companies and success recorded so far, and then access the future. For you to sustain participation for a long term as a going concern, as a business you must have good corporate governance. This will help to determine how to organise your activities, what risks to take and how to mitigate risks.
A player cannot attract the bank’s attention if he does not have a structure that is observed and examined as transparent as well as operating in line with global best governance. So, we think that for our local players that want to grow big, they must embrace good governance. We have done that for a number of players. We have actually tried to make them to understand the need for governance. We have also called external parties to assist them to put the right structure in place and have good governance.
This form of assistance by Access Bank has encouraged a good number of indigenous players. It is not about coming to borrow, but when they come to us, we help their companies to follow good steps as a player for the long run.
What are you doing in terms of being close to the DPR, particularly to consider the controversy in the last one year over the issue of theft rate on crude oil pipeline owned by the IOCs but being utilised by indigenous players, and the impact on cost per barrel of crude oil?
You know; I talked about global best practice and must look at where we are going to operate as a firm with the best practice, where is the deal trend that we should all focus on? Today, we have inefficiencies in the system and we can’t live and be okay with that. We want to identify what is making our production less efficient and see how we can team up and reduce inefficiencies. When we say oil is costing $15 per barrel to produce, we are talking about removing the associated costs responsible for the inefficiency such as the militancy in the Niger Delta, the issue of down times and all that.
After the removal of these undetermined costs elements and we can then say what is the optimum production cost per barrel? That is what we are aiming to achieve. If you look at the cost issue, Saudi Arabia is producing for less than $10 per barrel. Even Ghana here, the cost of production per barrel is not as high as the cost production of oil in Nigeria. So, a lot can be done. I am not blaming the oil company for what we have today, but I am saying as a system we are still inefficient and we must work together to minimise inefficiency so that we can have a going concern that is sustainable.
During your panel of discussion, you said you have a window that will allow your bank do more than 10 percent funding in the oil sector. Kindly expatiate further.
I didn’t say 10 percent. The CBN during the last quarter of last year issued a circular that banks’ total loans for the oil and gas sector should not exceed 20 percent of their portfolio. Before then, the policy was that a bank could finance 20 percent downstream, 20 percent midstream and 20 percent upstream. And because the circular was issued towards the end of the year, virtually all the banks could not comply with that policy. The CBN had to suspend the policy for now.
So, as of today the old policy is still what is applying which means as a bank, you can lend 20 percent downstream, 20 percent midstream and 20 percent upstream. The limited factor today is the bank’s single obligor limit. That is to say a bank cannot lend to one obligor, 3 percent of the shareholder’s fund. And today, we have banks that have up to N500 billion insured in the shareholders funds. So, they can lend up to a N100 billion if a particular bank so desire to lend to one obligor. That is why I am saying the banks today have the capacity.
The CBN two weeks ago said Nigerian banks were well capitalised. That shows that Nigerian banks are actually strong enough to support the sector. We are ready, provided there is good governance.
What is your take as the CBN is worried that the banks are over exposed to the energy sector viz-a-viz power and then oil and gas, and that you should reduce your exposure to the industry?
Yes, and rightly so, because the oil and gas and the power sector have issues right now. You are aware of the drop in crude prices and if an oil company is not efficient, then the drop in price of crude can make their loans to start going bad. So, if banks have not gotten their borrowers to edge their risk, then they are exposed. Once a bank goes down it affects the entire industry because there is what we call the ‘contagious effect.’ We have banks that are very important in the system, if anyone is brought down because of oil and gas then the whole industry will be contagious.
Do you think the current slide in oil prices is an act of God?
No, no. What I was trying to say is that sometimes things are allowed to happen by God because they will teach you a lesson you need to learn. We are too dependent on oil as a nation. Like I said, the whole of Africa have only 8 percent of the global oil reserve and Nigeria has 2.25 percent of the reserve. So, why should that 2.5 percent be our sole focus? It should be one of our resources. We should have a way of having a broad income sources for the economy. It calls for a rethink. For instance, to say that we are too reliant on oil, let us think of agriculture and other areas where revenue can be earned as a nation. That way we are better for a long run as a nation. So, to that respect the slide in oil price is a blessing in disguise.
Aside corporate governance, especially in the power sector, what are your observations and what advice do you have for them?
Power is a different issue. I don’t want to go into power because it involves a lot of issues with government doing their own part. But I think what banks want to finance are bankable projects. Bankable implies that the risk that they can see is mitigated. In this case, the bank will tell the customers that look I can’t see my way in and out so I won’t lend to you as a customer.
But the money banks are using to trade is not their equity, they fund from depositors. The bank is expected to pay customers back as at when required. So, banks can’t risk their deposit so much. They must ensure that they have enough skills to appraise the risks in any sector and know the extent to go such that when depositors come and ask for their deposit they can easily pay them without controversy.
Now, concerning the issue of banks being able to finance a project worth $500 million, can you respond to request from any indigenous firm asking for this amount to finance a single project today?
Again let me restate what I said. I said some banks have enough shareholders fund to support lending of half a billion dollars to any project. Access Bank is one of the top four banks in the country today. The bank has huge capital to raise support for indigenous players, whether we will lend half a billion to a company is a different ball game. I am not sure I will want to sit down today at Access Bank and lend half a billion to an indigenous company. I have a risk structure that I must comply with.
In Access bank, there is so much of good governance that is entrenched. What I do as executive director must be sanction by my risk and control team. We have a lending policy that is well entrenched in our governance framework that we must adhere to. So, the extent to which I lend must be in line with the law and in line with what I see as risk that I can take.
What message do you have for indigenous operators?
There is a very bright future for the indigenous producers. Nigerian banks are willing and able to support them provided they put in place the right structure that ensures good corporate governance and optimises production and enhances efficiency.
