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Jitters as Nigerian banks brace up for more loan provisioning

Banks are worried about rising cases of bad loans and will go after defaulters.



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

Nigerian banks are bracing up to provide for more bad loans, as they approach the end of the financial year 2020. The Covid-19 pandemic has severely affected businesses, causing low patronage, a dip in revenues, a higher cost of operations, and crushing debts.

The situation is said to have spooked some of Nigeria’s biggest banks, especially as several events in the country point to an uncertain 2021 for businesses in the economy. This, our sources reveal, has informed a spate of high profile court orders obtained against businesses owned by billionaires in the country.

According to data from the National Bureau of Statistics, total banking sector credit to the economy stood at about N18.8 trillion in the second quarter of 2020 up from N17.1 trillion at the end of 2019. However, non-performing loans at the end of the second quarter of 2020 rose by 2.27% to N1.2 trillion.

Data from Nairalytics, the research arm of Nairametrics, indicate that Nigerian banks have made provisions for about N211.2 billion alone in 2020 compared to N182.9 billion in 2019. This is still far lower than the N551.5 billion provided for by the banks in 2016 when Nigeria was in a recession, with the exchange rate in a tailspin. Things are even worse compared to 2016 due to the effects of Covid-19, lower oil prices, and insecurity.

Our sources believe the level of non-performing loans is probably worse than reported if banks were to deploy strict prudential guidelines which allow for stricter provisioning of non-performing loans. At the peak of the pandemic, most banks moved quickly to restructure loans that were in danger of going bad, allowing obligors breathing space to generate cash flows. Some banks issued moratoriums on loan repayments.

Despite this, there is growing apprehension that some of the loans could crystallize as bad in 2021, especially if insecurity and social unrest continues to impact negatively on business operations across the country. The fall in oil prices, coupled with crude oil cuts imposed on Nigeria is also a challenge for local oil majors to meet their debt obligations.

Oil and Gas Loans Take Center Stage

The Oil and Gas sector is a source of huge concern to most of the banks, especially due to the fall in oil prices and the cut in Nigeria’s export quota. With oil prices down and the cost of production higher, local oil majors are struggling to meet up with their debt obligations of nearly N5 trillion.

  • Based on NBS data, total oil and gas loans in Nigeria are estimated at about N4.94 trillion as of the second quarter of 2020, or a combined 26.2% of total credit to the private sector.
  • The loan is further divided into Oil and Gas upstream with N3.6 trillion, and the balance N1.3 trillion for the downstream (oil services) sector.
  • Oil and Gas also make up about N268.7 billion in non-performing loans or 22.1% of the total.

Earlier in the year, banks cut a deal with the CBN as they were granted regulatory forbearance in the restructuring of loans. The deal meant over 33% of industry loans were restructured as part of the deals signaling the spate of economic crunch that had hit the private sector.

Most of these loans are Oil and Gas loans, as they dominated most of the questions and responses in the earnings calls of most of the top commercial banks Nairametrics listened to.

CBN Raises Red flags

The rising non-performing loans were also a major concern for the central bank, following the end of its monetary policy committee meeting on November 23rd. In one of the excerpts, the CBN reported as follows:

“MPC noted the improvement in Financial Soundness Indicators of the DMBs which showed Capital Adequacy Ratio (CAR) of 15.5 percent, Non-Performing Loans (NPLs) of 5.73 percent and Liquidity Ratio (LR) of 35.6 percent, as at October 2020. As regards nonperforming loans (NPLs), MPC, however, noted that the ratio remained above the prudential benchmark of 5.0 percent and urged the Bank to sustain its tight prudential regime to bring it below the benchmark.”

The comment from the central bank suggests they are concerned about the rising levels of non-performing loans and have basically given the banks green light to go after debtors. One of the many tools the banks have to recover their loans is the use of the Global Standing Instructions introduced earlier in the year.

Court Orders and AMCON

However, Nairametrics understands some of the heavy obligors have found ways to beat the trap, and even when they do not, they do not have cash in their accounts that the banks can lay claim to. This is why some of the banks have gone the route of court orders to seize the properties of defaulters.

Just last week, Nigeria’s Access Bank obtained a court order that enabled it to seal the corporate head office of Seplat Petroleum Development Company. AMCON, Nigeria’s bad debt company, has also been busy all year round, seizing assets of loan defaulters.


Riding on the back of its amended act that gave it sweeping powers to go after loan defaulters, it has deployed several tactics such as naming-and-shaming, outright sealing of properties, working with EFCC to arrest defaulters, blocking bank accounts, etc., just to recover its loans. AMCON currently holds over N5 trillion of bad loans on its books.

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Dangote Sugar, sweet in more ways than one

Significant growth in gross revenue was driven largely by sale to Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited.



Quick take: Sustained cost pressure weighs on profit, Dangote Sugar Refinery: Revenue recovers but cost pressures remain

By refining capacity, Dangote Sugar Refinery Plc (DSR Plc) is acknowledged as the largest Sugar Refinery in sub-Saharan Africa and one of the largest in the world. With up to 60 percent market share, it is also clearly, the most dominant player in the Nigerian sugar market.

DSR Plc recently released its audited Financial Statements for the year ended December 31, 2020 and overall and year-on-year group performance results were very good.

Despite the impact of the Covid-19 induced lockdown which curtailed distribution across the country and resulted in decreased revenues from income generated from freights, gross revenues increased by over 33 percent year-on-year to ₦ 214.3 billion. The significant growth in gross revenue was driven largely by a rise in revenue from the sale of its 50kg sugar, with the two main customers being the Nigerian Bottling Company Limited and Seven-Up Bottling Company Limited who operate principally from Lagos.

READ: Dangote Sugar completes acquisition with Savannah Sugar Company Limited 

Year-on-year, gross profit increased by over 40 per cent to ₦ 53.75 billion, Profit before tax increased by almost 53 per cent to ₦ 45.62 billion, and Profit after tax increased by 33 per cent to ₦ 29.78 billion.

Notwithstanding the good result, the group operating results showed some issues and headwinds. First, during the year, DSR Plc wound up Dangote Niger Sugar Limited (one of four companies that had been set up to acquire large expanse of land and locally grow sugarcane as part of its concerted backward integration project). The winding-up was sequel to continued community dispute over land acquired in Niger State for this purpose. This winding-up event cost DSR Plc approximately ₦ 100 million.

Second, there continues to be a heavy reliance on Lagos for its gross revenues as revenues generated from Lagos State increased significantly from circa 33 per cent at the end of 2019 to over 50 per cent by the end of 2020. The share of the Lagos segment in gross revenue thus continued to grow and currently represents a significant market concentration risk for DSR Plc.

READ: Nigeria’s biggest oligopolies: Who are the real beneficiaries?

Third, provision for impairment on financial assets or in simple terms, receivables that are unlikely to be collectable, also trended upwards from ₦ 1.3 billion in 2019 to ₦ 1.45 billion by end of 2020 with net financing expenses also rising significantly from ₦ 516.2 billion in 2019 to ₦ 1.92 billion by the end of 2020. This rise in expenses was largely driven by a significant rise in exchange losses incurred in the ordinary course of business, rising from about ₦ 7 million in 2019 to over ₦ 1.57 billion at the end of 2020.

Finally, administrative expenses represented mainly by employee salaries grew year-on-year by over ₦ 1.2 billion.

With the recent reopening of land borders, we expect that revenues and margins will become squeezed as sales and production volumes become constrained by the influx of largely smuggled, lower quality, and much cheaper sugar and its substitutes. DSR Plc’s sugar refinery is also strategically located very close to the Apapa port and its logistics operations, distribution of raw materials and delivery of finished goods will continue to be impacted by the infamous Apapa Traffic Gridlock and road diversions/closures around the axis. Although the effort of Lagos state and the recent introduction of the electronic call up of truck by the NPA has eased the issue, still, it needs to be watched closely.

READ: Dangote Sugar yearly revenue surge by 33%, announces a dividend of N1.50

Earnings per share at the end of 2020 was ₦ 2.45 (2019: ₦ 1.87; 2018: ₦ 1.85)

Subject to approval at its forthcoming Annual General Meeting, DSR Plc board of directors have proposed a dividend of N1.50k per ordinary share (2019: ₦ 1.10k, 2018: ₦ 1.10k).


This performance is sweet in more ways than one.

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The Nigerian economy is increasingly dollarized but there is a way-out

Nigeria’s overdependence on Oil has brought about high dollarization in Africa’s biggest economy.



For managers of the Nigerian economy, it was a huge sigh of relief when the National Bureau of Statistics reported that the country had surprisingly exited a recession in the 4th quarter of 2020. Contrary to most analyst expectation, the Nigerian economy grew by 0.11% in the 4th quarter of 2020.

Despite the return to growth, albeit tepid, a dark cloud of uncertainty continues to hover over the minds of millions of Nigerians as the broader economy remains in a fragile state. A key factor that remains a bellwether for the economy is the exchange rate, which is always perfectly correlated with the price of oil and the resultant dollar related export earnings.

Data has repeatedly shown that the country of over 200 million people is affected by the volatility of crude oil prices in the international market, particularly in the exchange rate value of the naira. Without oil, the Nigerian economy in its current state will collapse.

Data from Nairalytics, a data-sharing portal, reveals that the oil sector provides for 85% of Nigeria’s export earnings and 55% of its government revenues, making the nation highly dependent on the dollar for its survival. It appears a lot of financially savvy Nigerians now this already and are increasing their dollar positions.

According to Silas Ozoya, Founder/CEO of SUBA Capital LLC, in an exclusive interview with Nairametrics, a growing number of Nigerians are getting more attached to the US dollar due to high inflation and low purchasing power of the naira.

“Many Nigerians are beginning to dollarize their spending, investment and asset holdings to hedge against the ever-increasing inflation rate and our strong economic romance with recession,” Ozoya said.

Nigeria, Africa’s biggest crude oil producer, has been heavily impacted by the plunge in crude oil prices following the outbreak of the COVID-19 pandemic, with the nation’s authorities adjusting the naira twice in the year 2020 to deal with the pressure.

Besides the drop in foreign exchange revenues from crude oil export, diaspora remittances, which made up about 5% of Nigeria’s GDP in the year 2019, also experienced a significant decline in 2020, again due to the impact of the pandemic and the economic challenges faced by many nations across the globe.

Uwa Osadiaye, a financial analyst in a leading merchant bank, in a note to Nairametrics, revealed that the Nigerian apex bank had made great efforts to reduce the country’s high dependence on the dollar. He advised the nation to increase its Agricultural production.

“The central bank has tried to do this with little success but I believe that beyond administrative measures, the key could lie in increased domestic production of things we consume that aren’t commoditized internationally for a start, such as food crops,” Osadiaye said.

Temitope Busari, CFA, in a telephone interview with Nairametrics, said that it was time for Nigeria as a country to diversify.

“One outcome of the diversification of the Nigerian economy, and perhaps the most critical one at this time, is the potential to diversify our foreign exchange earnings as a sovereign state. It will reduce overdependence on crude oil, maximize opportunities in erstwhile neglected sectors and project the country as the destination for top-class value creation in other areas outside being an oil-producing state,” Busari stated.

The financial analyst also spoke on the need for Africa’s leading oil producer to invest more in intellectual property and encourage Nigeria’s talent in the diaspora, saying:

“We have produced some of the most brilliant minds in the world evidenced by the ground-breaking successes recorded by Nigerians in diaspora (Medical professionals, Software engineers, resilient small business owners to mention a few), and we must begin to drive policies to retain that talent in-country and make the world pay premium dollar for it.”


Adetayo Teluwo, a scholar at Warwick Business School, said that the narrative seems to be changing as Nigerians are now beginning to embrace homemade goods.

“The Fashion & Style scene continues to boom. From side hustles to globally-competitive websites with options to accept payments from customers all over the globe,” Teluwo said.

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Bottom line

Economic experts believe that the way to solve this growing menace is for Nigeria to promote free markets and support large scale exports from the Agricultural, Mining, and Technology sectors. The country should tap into its raw diamond which is “intellectual services” to develop a knowledge economy.

Nigeria can draw lessons from India, which has performed remarkably well in creating an outsourcing and knowledge-based economy valued at over 150 billion dollars per annum. This has put India on the technology map, as a destination of low-cost but high-quality technical services, helping the densely populated nation to generate sufficient economic ripple effect to drive job and wealth creation.

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