Business News
Nigerian banks at risk due to debts by independent oil producers
According to data from the Central Bank of Nigeria (CBN), about a third of loans by Nigerian banks were given to oil firms.
The global oil crisis, which has caused a historic crash in crude oil prices, is currently affecting Nigeria’s indigenous crude oil-producing firms. This unfortunate situation is also believed to pose a serious threat to Nigerian banks.
What we know: A monitored report from Bloomberg suggests that these independent oil producing firms, which pump some 400,000 barrels of crude oil per day (about a fifth of the country’s crude oil output), risk causing some liquidity crisis among some of the local banks that finance them.
See the oil firms: Some of the indigenous oil firms that are going through this financial crisis include Shoreline, Aiteo Group, Eroton Exploration & Production Company, Seplat Petroleum Development Company, and others.
The independent oil producing firms account for about 90% of the $8 billion that are being owed to financial institutions, including local banks. While a portion of those loans were hedged at $50 per barrel, a greater percentage of them were not. This, thereby, raises the risk of default by the oil firms.
According to data from the Central Bank of Nigeria (CBN), about a third of loans by the Nigerian banks were given to oil firms, although some of their transactions are hedged.
(READ MORE: Nigeria’s bonny light crude price falls below Brent crude, WTI)
Why is this happening? The impact of the Coronavirus pandemic, coupled with the oil market crisis, has seen global crude oil prices crash far below the projected price for the year. While the Brent crude sold at slightly above $21 per barrel yesterday, Nigeria’s headline crude, Bonny Light, sold for slightly above $16 per barrel. In fact, the Bonny Light was earlier sold at a hugely discounted price of $10 per barrel due to the supply glut in the market and the issue of storage crisis.
This will greatly affect the ability of the independent oil producers to meet up with their debt obligations to local banks, as they will need crude oil to sell between $35 and $40 per barrel in order to stay in business.
While commenting on the situation, the Chief Executive Officer of Shoreline Group, Kola Karim, said:
“Government needs to come up with the independents and the other oil producers, a financial rethink of the funding mechanics for the industry, if not we’ll see a total collapse which in turn will drag down the banks.”
(READ MORE: Nigerian crude producers smashed by low crude oil prices)
Meanwhile, some analysts are of the opinion that if this low crude oil price persists for about 6 months, a full-blown crisis will be experienced in the banking sector. Already, Nigerian banks are said to be complaining about the N1.4 trillion debt they are owed. This is because the situation is making it difficult for them to meet regulatory cash reserve targets.
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Business News
Cost of building materials rise by over 60% in one year
The price of building materials in the market experienced a rise of over 60% in the last one year.
The cost of Cement, Steel, Tiles and Plaster of Paris (PoP) cement, among others have risen by over 60% between March 2020 and March 2021.
For instance, the cost of steel, which was sold at N234,000 per tonne as of March 2020, had increased to N380,000 at the end of March 2021. This represents a 62% increase within the period under review.
While Dangote Cement increased from N2,600 to N3,800 (though it is sold at N3,600 in some areas in Lagos), Lafarge Cement and BUA Cement increased from N2,400 and N2,250 to N3,600 and N3,250 respectively within the same period.
The price hikes are not limited to the cost of steel and cement alone but also to other materials like Tiles, PoP cement, and roofing sheets.
The cost of super white cement increased from N2,500 (25kg) to N3,700, and the cost of high-quality white cement (40kg) also increased from N4,000 to N6,500.
The cost of gravel increased from N80,000 to N140,000; that of 8mm diameter and 25mm diameter (imported) increased from N234,000 and N245,000 to N330,000 and N380,000 respectively.
Doors are not left out in the hike. Costs of Flush door (high quality), Panel door and Turkish steel door (1,500 x 2,100) also rose from N35,000, N40,000, N165,000 to N60,000, N75,000 and N235,000 respectively.
Why the hike?
Industry experts have attributed the hike to persistent depreciation of the naira and the rising cost of other building materials.
Tunde Oluwole, a fellow of the Nigerian Institute of Builders, explained that the development was caused by high interest rate, inflation, increasing exchange rate and scarcity of forex in the country.
He said, “The increasing prices in Nigeria is a result of the combined effects of high-interest rates, devaluation of the naira, inflation, and non-effective distribution network of the materials.”
To Kolawole Adebisi, an Estate Developer, the development in the cement industry is caused by the ban of imported cement in the country.
He told Nairametrics that he is not against the ban, as the government’s intention is to boost local production of cement but explained that “the local manufacturers were unable to produce enough cement to meet the demand and this contributed to the rising cost of the product.”
