Oil & Gas Responsible for 58% of Zenith Bank’s NPL 

The volatility in the petroleum industry has continued to affect Nigerian banks negatively and if not addressed systematically and urgently, it might push the sector to the brink of another crisis. Specifically, the cumulative non-performing loans of power, oil and gas companies, in the books of Zenith Bank Plc rose to N41.49 billion as at the end of 2016, accounting for 58.14 per cent of the bank’s total non-performing loans (NPLs). Giving a breakdown of its total non-performing loans in the energy sector, the bank, in its Annual Reports and Accounts for 2016, stated that oil and gas firms cumulative NPLs stood at N10.82 billion as at the end of December 2016, while power firms’ NPLs stood at N30.676 billion. The 2016 figure represents a sharp increase in the energy industry’s non-performing loans in the books of the bank.
In particular, total NPLs for the energy sector in Zenith Bank stood at N1.7 billion, representing an appreciation of 2,340.59 per cent when compared with the N41.49 billion recorded in 2016. In the 2015 financial year, NPLs of power and oil & gas firms stood at N566 million and N1.134 billion respectively. The bank’s gross loans to the oil and gas sector appreciated by 80 per cent from N362.489 billion in 2015 to N654.962 billion in 2016, while NPL attributed to the sector also rose by 854.23 per cent, from N1.134 billion in 2015 to N10.82 billion. On the other hand, gross loans to the power sector rose by 95 per cent from N55.753 billion in 2015 to N108.272 billion in 2016, while non-performing loans to the sector rose massively by 5,319.79 per cent to N30.676 billion, from N566 million recorded in 2015.
In general, in its 2016 Annual Report and Accounts, Zenith Bank put its total cumulative non-performing loans at N71.374 billion, rising by 58.9 per cent from N44.9 billion recorded in 2015. Also the bank’s total gross loans to various sectors of the economy appreciated by 16.2 per cent from N2.032 trillion recorded in 2015 to N2.361 trillion as at the end of 2016.
Further analysis revealed that total non-performing loans of the oil and gas sector was 1.65 per cent of gross loans to the sector, while that of the power sector was 28.33 per cent of gross loans to the sector. Also, analysis of the bank’s gross loans and advances to customers on a sector-by-sector basis showed that loans to the agriculture, consumer credit and manufacturing sectors stood at N70.029 billion, N6.081 billion and N523.17 billion respectively, while non-performing loans to the three sectors stood at N1.636 billion, N552 million and N4.824 billion respectively. Loans to the real estate and construction sectors, finance and insurance sector and government stood at N138.216 billion, N23.486 billion and N307.049 billion respectively, while their non-performing loans stood at N3.636 billion, N3.804 billion and N854 million respectively.
Furthermore, Zenith Bank’s gross loans to the transportation, communication, education and general commerce sectors stood at N55.859 billion, N116.082 billion, N9.347 billion and N348.256 billion, while non-performing loans stood at N1.052 billion, N134 million, N161 million and N13.224 billion respectively. In its explanation on the rising non-performing loans,
Zenith Bank stated that the recent volatility and decline of crude oil prices had significantly affected the country’s revenue and capacity and has brought about a reduction in government earnings and dragged down the country’s foreign exchange reserve position to about $25.8 billion as at December 31, 2016.
It further explained that it brought about an acute shortage of foreign exchange liquidity, inability of the Central Bank of Nigeria, CBN, to fund import requests from customers leading to reduced production capacity of many companies and in some cases outright closure of business. It said, “This situation has raised concerns around ability of banks and their customers to meet their obligations when they fall due. These are mainly with the funding of oil and gas and power assets purchases and other exposures to foreign exchange obligations. “There are also concerns with reduced capacity utilization in local industries and therefore possibility of Non-Performing Loans increase in the period as customers may not be able to produce enough or do so at a higher cost which may affect sales and cash flows to meet repayment arrangements.