Unpaid Bank Loans to Oil Companies Could Spell Doom for Sector – GTB

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THE Guaranty Trust Bank, GTB, Plc. has said in its “Macroeconomic and Banking Sector Themes for 2017″, which was released on February 6, that an improvement in oil sector receipts will help banks in Nigeria to meet their obligations and improve performance of their assets. This is because loans to the oil and gas account for about 30 per cent of the total banking industry exposure”.

The banking industry has been plagued by declining asset quality in the wake of the fall in crude oil prices, devaluation of the naira and foreign exchange scarcity, with the ratio of non-performing loans rising to 11.7 per cent from 5.3 per cent in December 2015.

According to the publication, “The downside, however, of continued challenges to production and evacuation of crude oil from the delta region will lead to further deterioration of asset quality and repayment defaults as reduced earnings weakens the ability of players to meet their scheduled repayment to banks.

The GTBank added that with the Deposit Money Banks reeling under the pressure of naira devaluation and earnings challenges, capital adequacy buffers might have been eroded below the minimum regulatory requirement level.

In view of the full compliance with Basel II in the computation of the capital adequacy ratio, and the possibility of further asset quality deterioration occasioned by loan loss provisioning implications, it is not unlikely that banks may have to raise additional capital to stay within the 15 per cent minimum capital requirement of the CBN.  “There may then be considerations for a reduction in this requirement or forbearance as the current market conditions are unsuitable for a capital raise.

Despite the beating that the Nigerian economy had taken in the last 24 months, the GTB said, “the fundamentals of the economy, which include the market size, population, enterprise competency of Nigerians, demographic, natural resources, etc., are still very strong. In our opinion, the harmonisation and implementation of the right policies (both fiscal and monetary), that will optimise these fundamentals into stimulating economic activities and maximising productivity, appear to be the missing link.”

—  Feb 8, 2017 @ 14:22 GMT

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