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What banks might do to avoid getting crushed by Oil & Gas Loans

Debts owed by the upstream oil and gas sector in Nigeria only represent about 19%-25% of banks’ loan books, according to Lanre Buluro of Chapel Hill Denham.

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What banks might do to avoid getting crushed by Oil & Gas Loans

Recently, there has been growing media speculations over the possibility that Nigerian banks might become adversely affected by the prevalent global oil crisis.

One article by Nairametrics had declared that banks were at risk due to the perceived inability of indigenous oil companies to repay their loans. While this worry is not entirely without merit, some experts who spoke to Nairametrics have assured that the situation is not as serious as some people believe it to be.

Banks they claim, have learnt from the lessons of the 2015-2016 oil crisis and took bold steps to mitigate against their downside risks.

READ MORE: Updated: CBN debits banks N1.4 trillion for failing to meet CRR targets.

What the experts are saying

According to the Director of Sales at Chapel Hill Denham, Lanre Buluro, banks’ loans to the oil and gas sector are really not as bad as people think. As a matter of fact, debts owed by the upstream oil sector (which is directly involved in crude exploration and has, unfortunately, been hit hard by the global oil price slump), only represent about 19%-25% of banks’ loan books.

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In his emailed response to Nairametrics’ inquiries, Buluro said:

“The oil & gas book in banks is not as bad as people think, particularly the upstream subsector. The upstream book is about 19%-25% of loans. Of course, given the current environment, there is a concern. From our talks with management, they are watching the situation.”

Measures are in place to handle the situation

Buluro further explained that some lenders already have measures in place aimed at mitigating the adverse effects of any possible oil price crash.

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One of such measures entails hedging production at $45 per barrel as part of the loan terms. With this hedge in place, oil companies are bound to meet their loan obligations despite the recent downturns.

An earlier analysis by Nairametrics Research listed out the names of the banks that did this.

(READ THIS: Moody’s changes outlook on the Nigerian banking sector to negative)

“In the meantime, some companies (banks) have already begun to slash their CAPEX and will most likely cut dividend payouts in 2020,” Buluro disclosed.

These moves are expected to generally help them to manage their costs of operation, as they try to cope with the harsh economic challenges posed by recent global events.

Buluro also highlighted other measures some of them might be taking to protect themselves. He said:

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“The good banks will take prudent measures and take provisions (eg. GTBank and Stanbic IBTC). If the risk doesn’t crystalize, it will be a written back which is accretive for earnings. And in the event some borrowers struggle, banks will restructure the loans – defer principal payments, elongate tenure.”

Should banks consider lending less to the oil and gas sector?

Bearing in mind that this is not the first time Nigerian banks have had to grapple with this kind of challenge due to their exposure to the oil and gas sector, we wanted to find out if it is high time banks rethought their lending to the sector. In other words, should they, perhaps, consider lending less to oil and gas companies going forward? Mr. Buluro does not think this is possible.

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

“In terms of lending less to the sector, it is impossible. The sector is a critical part of the economy. While its 9% of GDP, it is still responsible for 90% of USD revenue for the govt. There are strong names in the sector with considerable reserves (most loans are reserve-based lending).

“Also, banks have a dollar book and have to lend dollars, so the oil & gas sector is a prime customer for those dollars. There are other portions of the bank loan books that are riskier (retail, manufacturing, and general commerce) and have bigger NPL implications.

“Note that banks have learnt their lessons from the past and are structuring loans with a better understanding of the risks,” he said.

Similarly, a former banker and the Principal Consultant at Hatytude Consultancy Services Limited, Femi Hassan, said he does not think “the oil price crash will necessarily determine how banks will lend to the oil companies going forward.” This is because most banks have learnt from past events and are now more careful by introducing hedges when lending.

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READ ALSO: Banks’ loans to Oil and Gas, Power, other sectors drop by N411.8 billion 

Latest results from Nigerian banks largely indicate higher profits as the effect of the Coronavirus induced lockdowns is yet to be captured. However, it is expected that Q2 results will come under significant strain as banks recalibrate their loan books and assess their cost. Some banks have already taken bold steps by cutting down on payroll costs. Access Bank recently announced a 40% slash in payroll cost.

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The banking index of the Nigerian Stock Exchange gained 15% in April, perhaps an indication that investors see a bright spot amidst the doom and gloom. Time will tell whether the light will remain as bright.

Emmanuel is a professional writer and business journalist, with interests covering Banking & Finance, Mergers and Acquisitions, Corporate Profiles, Brand Communication, Fintech, and MSMEs. He initially joined Nairametrics as an all-round Business Analyst, but later began focusing on and covering the financial services sector. He has also held various leadership roles, including Senior Editor, QAQC Lead, and Deputy Managing Editor. Emmanuel holds an M.Sc in International Relations from the University of Ibadan, graduating with Distinction. He also graduated with a Second Class Honours (Upper Division) from the Department of Philosophy & Logic, University of Ibadan. If you have a scoop for him, you may contact him via his email- [email protected] You may also contact him through various social media platforms, preferably LinkedIn and Twitter.

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Companies

GMD, 2 Executive Directors buy 5 million additional units of Zenith Bank Plc shares

In three separate transactions, major stakeholders purchased 5 million units of Zenith Bank’s shares.

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Executive Director buys 2 million additional Units of Zenith Bank Plc Shares.

Zenith Bank Plc, Group Managing Director, Mr Ebenezer Onyeagwu, and two Executive Directors, Messrs. Dennis Olisa and Ahmed Umar Shuaib, have purchased an aggregate of 5 million units of additional Zenith Bank Plc shares.

This was disclosed by the bank, in a notification sent to the Nigerian Stock Exchange, and seen by Nairametrics.

According to the notification, signed by the Company’s secretary, Michael Osilama Otu, the purchase was made in the bourse, over three transactions on the 16th and 17th of September, 2020.

As part of the regulatory requirements, the disclosure must be reported to the Nigerian Stock Exchange, especially when the trade is executed by a major shareholder or director of a listed firm.

Breakdown of the deal

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According to the details of the deal verified by Nairametrics, Mr. Dennis Olisa pulled the highest deal as he purchased 2,000,000 additional units of Zenith Bank Plc’s shares at an average of N17.18 per unit, totaling N34.36 million. Mr. Ahmed Umar Shuaib also purchased 2,000,000 additional units of the Bank’s share, at an average price of N16.99 worth N33.98 million. Completing the trio was, Mr. Ebenezer Onyeagwu who purchased 1,000,000 additional units at an average of N17.05 worth N17.05 million.

This major purchase boosted the total number of trade deals (Volume) posted by the Bank in the NSE market, as the deals contributed about 11.61% of the Bank’s total deals between 16th and 17th of September, 2020.

(READ MORE: Zenith Bank rewards customers with massive giveaways in the “Zenith Beta Life” weekly promo)

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What this means

Based on the recently released H1 2020 Financial Results of Zenith Bank, Mr. Ebenezer Onyeagwu had 45,500,000 direct shares as of June 30, 2020. Mr. Ahmed Umar Shuaib had 7,577,343 direct shares, while Mr. Dennis Olisa had 7,122,316 direct shares. All these remained unchanged from their reported shares in H1 2019.

With the addition of 1,000,000 shares, Mr. Ebenezer Onyeagwu’s stake increased to 46,500,000, indicating an increase of 2.19%. Mr. Ahmed Shuaib’s shares also leaped by 26.39% to 9,577,343, while Mr. Deniss Olisa’s shares increased by 28.08% to 9,122,316 direct shares.

This deal may signify that the Bank’s insiders expect an increase in share price. It is a positive signal to outsiders, coming from top insiders who are abreast with latest information on the Bank’s prospects.

This can play a vital role in stimulating a bullish trend. Zenith Bank’s share price is currently trading at N16.70 on the NSE.

Conclusion

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Regardless of the impact of the pandemic on the income and revenue of banks, Zenith bank still remained one of the high-flying financial organizations in Nigeria. For example, the tier-1 bank’s gross earnings grew by 4.37% from N331.5 billion in H1 2019 to N346.1 billion in H1, 2020. Its Profit After Tax increased by 16.81% from N111.7 billion to N114.1 billion within the period under review. The aforementioned factors might have been the reason behind the recent bullish trend for its stock.

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Business

FG apologizes, says Self-Certification directive is not for everyone

The Federal Government has made clarifications concerning earlier announced Self-Certification Forms.

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FG apologizes, says Self-Certification directive is not for everyone, FIRS introduces stamp duty on house rent and C of O transactions

The Nigerian government has backtracked on its earlier issued guidelines on the new banking Self-Certification Forms, saying the notice does not apply to everyone.

On Thursday, the Nigerian government ordered all persons holding accounts across financial institutions and insurance firms, to complete and submit self-certification forms to their respective financial institutions.

Explore the Nairametrics Research Website for Economic and Financial Data

It stated, “This is to notify the general public that all account holders in Financial Institutions (Banks, Insurance Companies, etc.) are required to obtain, complete, and submit Self – Certification Forms to their respective Financial Institutions. Persons holding accounts in different financial institutions are required to complete & submit the form to each one of the institutions. The forms are required by the relevant financial institutions to carry out due diligence procedures, in line with the Income Tax Regulations 2019.”

However, on Friday morning, after receiving expected backlash on social media, FG attempted a clarification stating, “We apologize for the misleading tweets (now deleted) that went up yesterday, regarding the completion of self-certification forms by Reportable Persons,” and that, “the FIRS will clarify Nigerians on the objectives of the directive.”

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READ: CBN automates trading system, introduces electronic form to facilitate exports 

The FIRS earlier today made a statement, that the guidelines are only for non-residents, and people paying tax in more than one country.

READ: Tax implication of IFRS adoption in Nigeria: key issues

“The Self Certification Form is basically to be administered on Reportable persons, holding accounts in Financial institutions, that are regarded as “Reportable Financial Institutions” under the CRS. Reportable persons are often non-residents and other persons, who have residence for tax purposes in more than one jurisdiction or Country.”

“The information that indicates an account holder is a resident for tax purposes in more than one jurisdiction, is expected to be available to Financial Institutions during account opening processes, for the KYC and AML purpose.” the statement read.

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Business

This is a copy of the Self-Certification form govt. wants targeted account holders to fill

The FIRS posted a copy of the self-certification form on its website.

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This is a copy of the Self-Certification form govt. wants targeted account holders to fill, President Muhammadu Buhari's full speech at China-Africa Extraordinary Summit on June 17, 2020

The Nigerian government on Thursday tweeted an order to all persons holding accounts across financial institutions and insurance firms to complete and submit Self-certification forms.

This was announced by the Federal Government in a social media statement on Thursday. The FG warned that failure to comply may include a monetary penalty or inability to operate the account.

READ: FG to save N1 trillion annually from petrol subsidy removal

The Government also urged Nigerians to comply with the requirements and execute all forms needs, if not sanctions may be introduced in the forms of monetary penalty or inability to operate the account.

The government however deleted the tweet on Friday, explaining that it does not apply to everybody, contrary to what it had earlier tweeted. The FIRS claims those affected are non-residents.

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READ: Despite billions on agriculture, food inflation up by 108% since 2015

Nairametrics has seen a copy of the “Self-Certification Forms” detailing the information that account holders are meant to share. See below;

NB: This article has been updated to reflect new information regarding who the accounts holders (reportable persons) are.

READ: UK to impose visa ban, seize assets of Nigerians for electoral offences

Download (PDF, 839KB)

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