Banks restructure oil sector loans as crude price remain unstable

RESEARCH has shown that commercial banks have started restructuring the tenures of their upstream loans to 10 years, up from five years, using a benchmark of $30 per barrel.

According to a research conducted by Renaissance capital (RenCap), the midstream/service loans are also being restructured by banks.

RenCap report predicted that non-performing loan could build-up in the sector, where projects are cancelled or suspended and vessels are made idle; there were no major concerns expressed on downstream exposures.

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The report, which was the findings from meetings with commercial banks, stated that the bigger asset-quality concern of the banks was their non-oil loans, which according to them was suffering from the sharp slowdown in economic activity and worsening forex scarcity issues, and the unpredictable downward spiral these events could lead to.

“That said, it remains the case that the banks are acknowledging the problems but on cost of risk guidance no-one is guiding to a blowout scenario because: the states got bailed out; the forex stance has allowed the banks time to significantly close their open trade positions; and the banks really believe stronger supervision and risk management makes them better prepared than during the last crisis.

According to the report, while the other tier 1 banks appeared have re-priced their loans downwards on a selective basis, GTBank had re-priced its loan book downwards by 150-200 basis points and has recorded success in poaching some high-quality corporates from other banks.

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But when contacted on the development, the Executive Director, Corporate Finance, BGL Capital Limited, Mr. Olufemi Ademola, described it as a proactive move by the banks. This, according to him would be better for the banks compared with a situation whereby the loans would be taken completely as impaired.

“But what they have done was a reaction to reality. Some consecutive people may even argue that $30 per barrel is too high. But what we might see is that most of the banks will not be able to give new loans in the oil and gas sector. With that, their cash flow expectations would be lower,” Ademola added.