NIGERIA’S indigenous oil and gas producers as well as several Deposit Money Bank (DMB) operations may be heading towards a near collapse following the inability of the companies to meet their debt service obligations to the DMBs since the outbreak of the Coronavirus pandemic in the country.
The oil and gas companies failure to service their debt may have been exercebated with the prevailing regime of low oil prices occasioned by the global coronavirus pandemic.
According to a recent Central Bank of Nigeria (CBN) financial stability report, commercial and merchant banks loan exposure to the oil sector is estimated at about N1.6 trillion.
A source in one of the third generation banks who proffered not to be named, admitted that the banks’ exposure to indigenous operators was a source for concern in view of the crashing oil prices with no signs of improvement any time soon.
He said the banks are already in discussion with some of its customers in the oil and gas sector to work out modalities on moratorium and loan restructuring in the face of falling oil prices.
Speaking in Lagos on Thursday, an industry expert and former President of the Nigerian Association of Petroleum Explorationists (NAPE), Mr. Abiodun Adesanya, said the collapse of global oil prices was triggered by the coronavirus pandemic which also accounts for the current illiquidity of the indigenous players, thus making repayment of loan obligations entered into before the current turmoil in the market nearly impossible.
Adesanya stressed that the oil and gas industry will need to be rescued from the current situation by the direct intervention of the Federal Government through the Central Bank of Nigeria.
He explained that indigenous oil and gas operators exposure to banks represents approximately 25 percent of Nigerian banks’ overall bad loan portfolio, warning that without direct CBN intervention, this could lead to structural shocks within the Nigerian banking system thereby affecting depositors’ money and restricting banks’ ability to support vital economic sectors as Nigeria plans exit strategies from the economic crisis.
He noted that if the developing scenario is not ameliorated through policy measures that give short-medium term respite until the oil market rebounds, there will be significant job losses in the oil and gas industry, since most indigenous players cannot withstand the current shock.
“If the current situation is left unchecked, it will threaten to wipe out this administration’s achievements and successive achievements in enforcing the Local Content Act that gave indigenous companies opportunity of playing significantly in the oil and gas sector”.
Also lending his voice to measures to contain the crisis, Chairman of Independent Petroleum Producers Group (IPPG), Mr. Adeyemi Bero, expressed concerns that the decision of the Organisation of Petroleum Exporting Countries (OPEC) to cut oil production by about 400,000 barrels per day for Nigeria will impact indigenous producers capacity and production volumes, having already been hit by low of oil prices.
The IPPG Chairman said the development has already taken a negative toll on the operations of indigenous operators because of illiquidity, adding that liquidity comes from the revenue they make and loans from the banks which have all now been eroded due to current market reality.
The situation, he said would further toughen the banks since they would naturally want to hold on to what they have at the moment by not been able to raise money from their debtors.
He pointed out that the banks are also in shock with the CBN’s N1.4trillion on them on what it called Cash Reserve Requirement (CRR).