Banks in trouble *Suffer Dwindling Revenue, Hand-off Oil Sector *Mass Sack Looms As Investors Withdraw N4.9trn From Economy

Nigeria’s banking sector is currently witnessing a shockwave, following economic decline caused by reduced oil revenue, investigations have revealed.
This is coming at a time when an estimated $25billion (about N4.95 trillion) in foreign portfolio investments have been lost over the last few months, following rising political tension across the country, ahead of the March 28 and April 11 general elections.
We gathered that amid dwindling oil revenue, banks have suffered declining income, with fears of reduction in workforce in the next couple of months.
Sources revealed that about four banks are currently having liquidity problem, worsened by the oil sector crisis.
Investigations revealed that banks are no longer financing importation of petroleum products following non-payment of subsidy to major marketers by the Federal Government and the risks involved.

In the past, banks extended credits to major oil marketers to import fuel. But following the marketers’ inability to pay earlier credits, caused by the Federal Government’s non-payment of the subsidy, banks are now unable to meet the demand. This is partly the cause of the current fuel scarcity being experienced across the country.

The stoppage of fuel importation financing, some bank chief executives revealed, followed a directive by the Central Bank of Nigeria (CBN) last December to scale down their level of exposure to oil companies, to reduce the challenges of meeting the huge funding demand of the sector.

The CBN’s directive, it was learnt, stemmed from the result of an earlier risk-based supervision exercise carried out by the apex bank, which revealed a huge financial exposure of the banks to the oil and gas sector.

The apex bank was said to be concerned about some risk management deficiencies, and wanted to take necessary steps to ensure that banks have sufficient capital buffers to mitigate escalating risk-taking activities.

Apart from this, the new exchange rate regime announced by the CBN has also affected banks. The CBN closed the retail Dutch Auction System/Wholesale Dutch Auction System (rDAS/wDAS) segment of the foreign exchange market. With the closure and the pegging of an exchange rate at N198 per dollar, the apex bank stopped naira speculation, as commercial banks were banned from re-selling CBN dollars to other banks. Under this measure, CBN scrapped its window of direct sale of foreign exchange to end-users, and directed that all foreign exchange needs should be sourced from the interbank market, with rates ranging from N197 to N198 per dollar. With this, the previous gains commercial banks had made from forex trading were stopped.

From the public sector to the real sector of the economy, the stench of economy decline is being felt by all stakeholders, hence, the call on government to further tighten the loose ends to ensure it does not get worse than it is now before the end of the current administration.

With most state governments currently unable to pay workers’ salaries due to declining statutory allocations from the Federation Account, while Naira’s declining exchange value and other financial aggregates are forcing banks to recall facilities given to the real sector, stakeholders are becoming rather apprehensive that the impressive economic gains are speedily being eroded.

Daily Sun also learnt that in the face of the political uncertainties surrounding the impending general elections, an estimated $25billion (about N4.95trillion) investments held by foreign portfolio investors may have left the country over the last few months.

Sources revealed that the foreign investors decided to withdraw their money to watch political development, unsure of what would happen over the general elections.

A bank chief executive, who spoke to Daily Sun on condition of anonymity, however, expressed optimism that despite the loss of such huge portfolios, especially in the capital market, the economy remains strong and resilient.

According to him, these developments are expected, particularly, as successive governments failed to prepare the country for some of the current emergencies, but left it to continue running on one engine, which is crude oil.

The bank chief was convinced that the said foreign portfolios would return as soon as the elections are concluded peacefully, stressing that Nigerian economy offers more returns than other emerging markets.

He said the economy has been growing at the rate of over five per cent, which is higher than the rate of growth in most emerging markets.

Petroleum products marketing companies had heaped the blame of fuel scarcity on the CBN, insisting that the recent devaluation of the Naira was responsible for the crisis in the oil industry, resulting in unavailability of fuel.

Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Mr. Obafemi Olawore, said the high exchange rate resulted in the high cost of both petrol and diesel. He stated: “The unfortunate situation in which we find ourselves is that as the price of crude oil and the international price of diesel were dropping, we devalued the Naira. For example, for Premium Motor Spirit (petrol), the exchange rate for bringing products before the devaluation was N171.36 per dollar. At that rate, the landing cost of PMS was N90.67 per litre. There was a time the exchange rate rose to N188, that is N188 was the interbank rate, while the CBN gave us N171.36. But when it went to N188, the landing cost of PMS rose from N90.67 to N98.36. As at today when the exchange rate has gone to N199 (there is no window again), the landing cost rose to N103.45. So, you see that the main factor here is the exchange rate.”

According to marketers, the CBN’s action prompted them to take precautionary measures by relying on imported products from the Pipeline Products Marketing Company (PPMC). Though the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has given the marketers a concrete assurance that the N264 billion outstanding claims would be paid between now and March 31, the marketers are contending with the huge outstanding receivables due and payable to them by the Federal Government.

-DailySun