Nigerian banks are facing one of the worst cash crunch in decades after oil prices plunged on the international market leaving the lenders’ biggest borrowers in serious financial straits.
Commercial bank in the Africa’s largest oil producer have been forced to declare force majeure on financing oil projects and producers in the country as they anticipate a jump in non-performing loans this year, New Telegraph reported.
Fear has grown that oil producers, who account for more than 28 percent commercial banks loan portfolios, could fail to pay their debts if the global crude glut continues to keep oil prices subdued.
“What we set as worse target for oil (projection) is $45, but today it’s $35 per barrel. This is a big challenge for the banking industry,”Ronke Jibodu, vice president at First City Monument Bank Plc, said at the monthly technical meeting of the Nigerian Association of Petroleum Explorationists (NAPE) in Lagos.
During her visit to Nigeria in January, the International Monetary Fund (IMF) Managing director, Christine Lagarde, warned that Nigeria’s financial system could collapse if proper measures are not put in place to safeguard it from the prevailing uncertainty in the oil and gas industry.
According to New Telegraph, Nigerian banks executives are putting together a proposal to the Federal government for a bailout that will guarantee loan worth almost $25 billion extended to the petroleum industry.
In a report published in March last year, Allan Gray Group raised fears over the liquidity of some Nigerian banks and said it expected 2016 to be tough for the lenders unless they shore up their capital.
“Sentiment towards Nigerian banks has gone from positive to outright fear,” the group said. “The fear is not without reason given the falling oil price, likely spike in bad debts, political uncertainty and Boko Haram insurgency.”
“It is indeed likely that there will be a lot of distress next year, but it is important to remember that what a company earns in a particular year generally has little bearing on the intrinsic value of the business; what counts is the level of normal earning through the cycle and the ability to grow those earnings,” it added.
