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Banks that hedged against 2020 Oil price crash

Nigerian banks claim they have protected themselves against a potential loan crisis in the oil and gas sector. But is it enough?

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Banks that hedged against 2020 Oil price crash

Some major commercial Banks in Nigeria appear to have hedged against the current crash in crude oil prices mitigating against their risk to higher non-performing loans. A banking sector report seen by Nairametrics indicates some of the Tier 1 banks secured some hedges against the fall in oil prices protecting themselves from taking significant loan losses.

Banks with crude oil Exposure

A Nairametrics article had reported how much risk banks face this year due to debt from independent oil producers. According to data from the National Bureau of Statistics Nigerian banks as of 2019 reveal total loans to the Oil and Gas sector was N4.5 trillion down from N4.6 trillion in 2018. Out of the N4.5 trillion reported in 2019 N3.4 trillion was to the upstream sector. Total credit to the private sector was N17 trillion as at the end of December 2020.

Some analysts who spoke to Nairametrics on the condition of anonymity believe the banking sector may be underestimating the extent of the effect of the oil price crash on the financial health of the banks. “For now it looks like they have a plan until they start declaring loss” one analysis chided.

READ ALSO: Why NNPC may sack depot managers

How banks protected themselves

Research conducted by Nairametrics reveals most banks are relying on restructuring, collateral, and quality of debtors to protect themselves against an impending crystallization of oil and gas loans.

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The CBN had hinted a few weeks ago that it will accommodate loan restructuring for most debtors of commercial banks as part of its palliatives to deal with the twin shock of a health pandemic and a fall in crude oil prices. Some banks also took on cash collaterals against their borrowers as additional security in the event that oil companies are unable to repay the loans.

Some banks also learned their lessons from the 2015/2016 crash and reduced their exposure to local oil-producing companies focussing mainly on IOCs. It is unclear how these protective measures will aid banks in the coming weeks and months when the effect of the crude oil prices start to reflect on the balance sheet of banks.

While nearly all the banks plan to restructure loans or call on their security in the event of a default, some did take out financial instruments such as hedging.

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READ MORE: Nigerian crude producers smashed by low crude oil prices


Nairametrics looked into the financial statements of some of the top commercial banks for information on their total loan exposures to the sector and how they plan to protect themselves.

GT Bank: According to the information contained in the 2019 FY financial statements of the bank, as a percentage of total loans, GTB had the most exposure to the oil and gas sector with about N606 billion. The bank has released its 2020 first-quarter results but did not breakdown loans by sector.

GTB’s total exposure to the oil and gas sector is about 41% of its total loans out of which exposure to the upstream of the sector was 28%. However, an exclusive report that was seen by Nairametrics indicates the bank took out a hedge against a drop in crude oil prices. According to the report, the bank’s CEO had mentioned to investors on its 2019 earnings call that the bank had hedged its upstream loans at $50/bl till at least 2021. A financial hedge is an instrument taking by investors to protect themselves against a fall of a commodity or investment.

Zenith Bank: One of Nigeria’s largest banks by profitability has about N619 billion in exposure to the oil and gas sector as of December 2019. The exposure represents about 24% of the bank’s total credit of N2.46 trillion (gross loans). Out of the Bank’s N619 billion loan, 14.6% represents exposure to the upstream sector while 10.6% of its loans are to the downstream sector. About 30% of the bank’s 4.3% non-performing loans are from its oil and gas sector.

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Zenith Bank did not particularly reveal what hedges it has but it claims that it has put in place “some hedges” to protect itself from a crash in crude oil prices. Zenith Bank’s total exposure to the sector is about $1.5 billion. As an additional protective measure, Zenith Bank reports that it had also restructured about N406.4 billion of its loans.

Stanbic IBTC

READ MORE: Fitch rates 3 Nigerian banks lower to ‘B’, places others on negative watch

Stanbic IBTC claims 15% of its total loans of N556 billion (gross) is exposed to the upstream sector. The bank claims 3% of the loans are currently non-performing. OIl and gas loans also make up about 45% of the bank’s total foreign currency exposures. Stanbic does not category state how much it hedged but it claims it had hedged “a portion of its loan books” and that most of its loans were to IOCs.

Access Bank – For Nigeria’s largest bank by balance sheet about N240.9 billion or 7.7% of its N3.1 billion loans are exposed to the upstream sector. Another N480 billion in exposed to the Oil and Gas services sector (one of the highest) while N148.7 billion is exposed to the downstream sector. The bank claims 1.1% of its non-performing loans were from the oil and gas upstream sector. The bank did not report that it had any hedging instruments for its oil and gas loans.

FBNH – Nigeria’s oldest bank, First Bank has a total of N1.7 trillion about 18%, 8%, and 9% is exposed to the Upstream, Services, and downstream sections respectively. The bank did not reveal if it hedged any of its loans.

UBA’s total loan portfolio of about N2.1 trillion included N371 billion in oil and gas loans. The bank did not breakdown its oil and gas exposures into upstream, downstream, or services.

Banks appear to be more experienced this time around compared to 2015/2016. A string of results released last week by some banks reveals profitability growth for the first quarter of this year. This is despite the effects of Covid-19 on the global and the local economy. The oil price crash which began in earnest in February 2020 is also yet to reflect. Time will tell.

Nairametrics Research team tracks, collates, maintains and manages a rich database of macro-economic and micro-economic data from Nigeria and Africa. Our analysts share some of the data collated on Nairametrics, using formats such as docs, tables and charts etc. The team also publishes research based analysis as articles on a regular basis.

6 Comments

6 Comments

  1. Anon

    April 27, 2020 at 3:43 am

    A few errors. Access bank’s total loan exposure cannot be N3.1 billion. Total credit to the sector cannot be as at December 2020.

  2. Anon

    April 27, 2020 at 3:45 am

    A few errors in the write up. Total debt exposure of Access bank cannot be N3.1billion.

    Total credit to the private sector cannot be as at December 2020.

  3. Anonymous

    April 27, 2020 at 8:56 am

    Seems this article was written in a hurry. There are a couple of grammatical errors in the write up.

  4. Wole

    April 27, 2020 at 8:59 am

    It seems this article was written in a hurry. There are a couple of errors in this write up. This is unlike Nairametrics.

  5. Anonymous

    April 27, 2020 at 12:17 pm

    Why jumble First Bank and UBA data?

  6. Tasman

    April 27, 2020 at 12:18 pm

    Why jumble FBNH and UBA data?

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Companies

Naira devaluation, FX scarcity caused increase in cost of goods – Nigerian Breweries

Nigerian Breweries has revealed that Naira devaluation, FX scarcity caused increase in the cost of its goods in 2020.

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Jordi Borrut Bel, Nigerian Breweries Plc

The Finance Director of Nigerian Breweries Plc, Rob Kleinjan, has revealed that the increase in the brewer’s costs of goods was due to the devaluation in naira and FX scarcity, which led to the increase in the cost of inputs such as sorghum and sugar, as they are not fully produced locally.

This disclosure was made during the Nigerian Breweries’ Fact Behind Figures results presentation today.

However, Kleinjan explained that the increase in cost could not be fully attributed to currency devaluation and foreign exchange scarcity, which exerts pressure on imported input materials.

He said the increase in Nigerian Breweries’ costs of goods sold, as reported in its unaudited financial results, could also be linked to the volume of goods sold, as the company’s sales volume in Q3 increased by almost the same percentage as the cost of goods sold.

However, Mr. Kleinijan reiterated that to mitigate further losses, it was important for the company to focus on the supply chain and seek ways to mitigate price increases.

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What they are saying

The Managing Director of Nigerian Breweries, Mr. Jordi Borrut, while speaking at the virtual event said:

In 2020, the results of Nigerian Breweries were adversely impacted by COVID, VAT increase, FX devaluation and scarcity of foreign exchange. The year started with a promising 1st quarter, which was heavily impacted in Q2. The Nigerian market, however, rebounded in Q3.”

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Mr. Rob Kleinjan, while explaining the factors behind the increase in Nigerian Breweries’ cost of goods sold in the first nine months of 2020, said:

It is also clear that the increase in cost is due to the devaluation and the FX scarcity which has put pressure on our input cost. If you look into the main elements we use, which are sorghum and sugar – they are not fully produced locally, so when the currency is devalued, the prices of these inputs will soar.

That’s why it’s important that we are focused on the supply chain, and seek for ways we can mitigate any of the price increases, because the increase in cost comes from the input prices, which come from FX scarcity.”

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Companies

United Securities Limited changes name to Coronation Registrars Limited

United Securities Limited formally notifies its numerous customers and stakeholders of a change of name to Coronation Registrars Limited.

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In line with section 30(3) of the Companies and Allied Matters Act 2020 (CAMA), United Securities Limited has formally notified its numerous customers and stakeholders that it has obtained regulatory approval from the Corporate Affairs Commission to change its name to Coronation Registrars Limited.

The disclosure is contained in a verified post on Linkedln, signed by the firm’s Secretary, Omotoyosi Kola-Ojo, and seen by Nairametrics.

What this means

In line with the recent corporate action and according to section 30(5) of the Companies and Allied Matters Act, the company has been issued a new Certificate of Incorporation by the Registrar General of the commission, evidencing the change of name.

What they are saying

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A verified post by the Firm read thus: “The Public is hereby informed that United Securities Limited having passed the necessary Special Resolutions in line with Section 30(3) of Companies and Allied Matters Act 2020 (CAMA) and obtained the necessary regulatory approval of the Corporate Affairs Commission, has changed its name to CORONATION REGISTRARS LIMITED.

The public is further informed that pursuant to Section 30(5) of the Companies and Allied Matters Act, the company has been issued a new certificate of incorporation by the Registrar General of the Commission evidencing the change of name. All stakeholders are requested to take note of the above information.”

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Companies

We have exported 7 clinker vessels to other African countries since June – Dangote Cement

Dangote Cement says it has exported 7 clinker vessels to other African countries since June.

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Dangote Cement reveals share buyback plans, DANGOTE CEMENT records loses as ASI decline by 0.39%

The Group Executive Director of Dangote Cement, Michel Pucheros, announced that Dangote Cement, Africa’s leading cement producer with nearly 48.6Mta (Million Metric Tonnes Annually) capacity across Africa, has exported 7 clinker vessels to date to other African countries.

This statement was disclosed by Mr. Pucheros in a press release issued on the Group’s performance in the third quarter.

  • The cement maker exported 2 vessels of clinker per month to Cameroon in the third quarter of 2020 via the Apapa export terminal, which takes the Group’s clinker export for the quarter to 6 vessels.
  • In addition to its maiden shipment vessel to Senegal, which is a total of 27.8Kt of clinker, took its clinker exports to other African countries from June to date to 7 vessels.

In his statement, Mr. Pucheros said, “We continue to focus on our export strategy and are on track to ensure West and Central Africa become cement and clinker independent, with Nigeria as the main supply hub.

“Clinker exports have steadily been ramping up in Q3 after our maiden shipment in June 2020, whilst land exports have also resumed.”

However, as the Group ramp-up production across all segments and regions to reach its cement production and bagging capacity of 48.55 Mta, he said,

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“Dangote Cement’s strategy to offer high-quality products at competitive prices is meeting customers’ expectations in Nigeria and across the continent, where we continue to deploy excellent marketing initiatives and operational excellence across the continent.”

About Clinker

  • Clinker is a nodular material which is used as the binder in cement products. Clinker is produced inside the kiln during the cement manufacturing process.
  • The primary use of clinker is to manufacture cement, as cement is produced by grinding clinker.

What you should know

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Nairametrics had reported that Dangote Cement Acting CFO, Guillaume Moyen, during a virtual event in September disclosed that the cement producer is set to commence clinker export to other African countries within the next few weeks.

He reiterated that the Management of the company is on course to sell more clinker across West Africa, and commence shipment to Central Africa in H2 2020.

Why it matters

The export of clinker to countries where limestones are not available in huge quantities gives these countries a chance to produce its cement for construction purposes.

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