Nigerian banks risk bankruptcy over exposure to oil companies, says expert

Mar 30, 2016

Energy companies could face difficulties to repay their loans.

Many Nigerian banks could go bankrupt due to their exposure to the energy sector, an expert has warned.

Speaking at the just concluded Sixth African Petroleum Congress and Exhibition (CAPE VI) in Abuja, professor of economics from the University of Ibadan Adeola Adenikinju said that energy companies could face difficulties to repay their loans as they struggle with the recent drop in oil prices and the reduced global demand.

"If nothing is done there is that possibility of banks going bankrupt. Some of the banks are exposed to the energy sector, oil sector and electricity sector. Now, some of those companies are not producing and the interests on the loans are increasing, making it more difficult for them to service those debts," he said, quoted by Vanguard.

He called for study to evaluate the situation before it becomes "a systemic problem or crisis."

He also urged the Federal Government to consider setting up an intervention fund that would assist energy companies in repaying their debts to the banks.

However, some experts argued that the Nigerian banking sector is better equipped to face a decline in oil prices than in 2009.

In 2009, the oil price drop has significantly reduced government revenue, resulting in the devaluation of the naira. It cost the Lagos stock exchange 70 per cent of its value, quadrupling the number of toxic assets.

Dolapo Oni, energy specialist at Ecobank, told Jeune Afrique that today's situation is different: "Some loans will certainly be restructured and payments rescheduled to reflect changes in the revenues of oil companies but today the banking sector is better capitalised, and banks know the hydrocarbon industry better."ADNFCR-2976-ID-801815517-ADNFCR