Oil price crash: 10 banks to restructure oil & gas assets



Nigeria’s banking industry may not be left out of the adverse impact of the over 46.8 per cent year-to-date decline in oil price as 2015 is set to test the quality of corporate strategic decisions and usher in a new phase for banks in Nigeria.

Reports have shown that at least 10 deposit money banks (DMBs) are likely to restructure their oil and gas assets following the decline in crude oil prices.

Banks with the highest exposure to oil and gas sector include Stanbic IBTC Bank Plc, Sterling Bank Plc, Guaranty Trust Bank, Access Bank Plc and First Bank Nigeria Holdings.

Others are Union Bank Nigeria, Diamond Bank Plc, First City Monument Bank Plc, Zenith Bank Plc and Fidelity Bank Plc.

Speaking on its impact to banks and Nigerian economy, Managing Director, Africa Macro Global Research at Standard Chartered Bank, Razia Khan, affirmed that at such a level of oil price decline, Nigeria would not be making excess crude savings in 2015, and foreign exchange (FX) reserves are likely to remain pressured.

She said Nigerians would experience a simultaneous weakening of import demand, which should help to preserve its current account surplus, but only just for a little while.

According to Khan, Nigerians should expect a March 2015 interest rate hike to 14 per cent despite recent monetary tightening by the Central Bank of Nigeria (CBN).

She also expressed fear that the exchange rate might reach N190 to the dollar in first quarter (Q1)-2015 and a rise in inflation to double digit in Q2 reflecting investor concern around weaker oil prices. All these have direct impact on banks’ interest earning assets.

“We forecast further tightening by the CBN, including an additional 100bpd hike in its monetary policy rate (MPR) to 14 per cent in March 2015. This is unlikely to prevent inflation rising to double digits by Q2-2015.

“We forecast that inflation will remain in low double digits until Q2-2016,” Standard Chartered Bank researchers stated.

According to analysts at BGL Securities Limited, with conventional sources of income threatened, new sources of income generation ideas would be required for banks to remain profitable going forward. They urged banks to focus more on financial intermediation to bridge the income gap, saying that aggressive push on financial inclusion should be adopted to mobilise deposits/savings, supported by mobile money and agent banking. Therefore, investment in mobile offerings is expected to largely receive increased attention by banks this year.

“Mobile money has not been as successful as envisaged due to poor redemption process and infrastructure. Agency banking is potentially large but not yet fully off the ground,” they argued.

It stated that the agent banking initiative of CBN would, this year, open new credit market fronts especially in rural areas.

The CBN, apart from targeted deployment of 350,000 Point of Sale (PoS) terminals by 2015, will give licenses to super-agents based on its recently released framework.

The BGL analysts, however, pointed out that banks need solutions to help out with risk management framework as they aggressively focus on loan creation to cover income gap.

“They also require ‘out of the box’ strategy on how to grow business quickly, organically.”

Meanwhile, the Managing Director/Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, sees 2015 as a year in which innovations in e-payment in the banking industry would open a lot of opportunities for banks to reach out to a wider segment of the population.

Source : SunOnline

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