Market News

. First Holdco NPL hit 10.2%

BY  Kayode Tokede

Amid growing Non-Performing Loans (NPL) and unstable global oil prices, a total of nine banks’ exposure to the Oil & gas sector increased to N15.6 trillion in 2024, representing about 94.4per cent increase from N10.17 trillion reported in 2023 financial year. 

The banks investigated by THISDAY are; Access Holdings Plc, Guaranty Trust Holding Plc (GTCO), United Bank for Africa (UBA) Plc, Zenith Bank Plc and FBN Holdings Plc.

Others include; Fidelity Bank Plc, Wema Bank Plc, FCMB Group Plc and Stanbic IBTC Holdings Plc.

The nine banks’ gross loans & advances to customers, however, closed 2024 at N53.15 trillion, representing an increase of 39.8 per cent from N38 trillion in 2023. 

THISDAY findings revealed that banks operating in the country in the 2024 financial year made huge loan provisions for Oil & gas, among other key sectors as demanded by the Central Bank of Nigeria (CBN) prudential guidelines.

The decline in crude oil prices and slow growth in production continued to impact Nigeria’s foreign exchange reserves in 2024.

Tight monetary policies and improved oil earnings provided some stability, but external factors kept pressure on the economy. Bonny Light crude averaged around $77 per barrel in December, down from $80.76 in January 2024. Oil production continued to fluctuate, reaching around 1.5 million barrels per day by 2024-end, falling short of the 1.78 million barrel per day benchmark set in the national budget.

According to a report by the National Bureau of Statistics (NBS), the Oil & gas sector in Nigeria experienced a modest performance in fourth quarter of 2024, reflecting both ongoing challenges and emerging opportunities.

The sector contributed 4.6 per cent to Nigeria’s total real GDP in Q4 2024, a slight decline from 4.7 per cent in Q4 2023 and 5.57 per cent in Q3 2024. 

A breakdown revealed that Zenith Bank, followed by First Holdco and Access Holdings led Tier-1 banks with the highest amount of exposure in the oil & gas sector in 2024 financial year-they crossed the N2 trillion mark.

According to the 2024 audited results, Zenith Bank exposure to the oil & gas stood at N4.11 trillion in 2024, about 94.4 per cent from N2.11 trillion declared in 2023.

As First Holdco announced N3.34 trillion exposure in the oil & gas sector in 2024, a growth of 53 per cent from N2.19 trillion in 2023, Access Holdco posted N2.07 trillion exposure in the sector, representing an increase of 41.3. per cent when compared to N1.46 trillion reported in 2023. 

First Holdco in the year under review saw its NPL ratio increasing to 10.2 per cent from 4.7per cent in the previous year, which is above the CBN requirement of 5 per cent.

Its management explained that, “The growth in NPLs is driven primarily by only one oil and gas loan from which proactive steps have been taken to sustain the resilience of our balance sheet. In addition, the Oil & Gas Portfolio has been largely driven by the exchange rate impact. Loan book, continuously being derisked, showcase prudent and proactive approach to risk mitigation that strengthens long-term financial position.  Excluding the oil and gas name, the NPL ratio would have been 5.4per cent. On the back of the robust risk management capacity, NPLs are expected to reduce to normalised levels over the year.”

The gross loan distribution by sector in Access Holdco showed that the Oil & gas- upstream   increased to 7.9 per cent in 2024 from 6.3 per cent, while in the Oil & gas -service sector, it dropped to 4.3 per cent from 6.3 per cent in 2023. 

Analysts expressed that the lingering war between Russia and Ukraine affected Nigeria’s crude oil inflow in the international oil market with a dip in demand from the once-dependable Asian market like India.

 They added that banks’ in 2024 exposure to the sector was based on cautious lending to key operators in the upstream sector.

Despite a recovery in oil prices, Nigeria has struggled to meet its production targets due to operational challenges and insecurity coming from pipeline vandalism.

Speaking with THISDAY, the Vice President, Highcap Securities Limited, Mr. David Adnori stated that banks are meant to lend to key sectors in the economy, stressing that increasing exposure by banks to the oil & gas is an indication that the sector remains lucrative amid IOCs leaving the country.

He added the sector remains a significant sector in Nigeria’s economy, stressing that financial instructions cannot ignore the Oil & gas sector despite the domestic and foreign risks.

The Managing Director, Olaniwun Ajayi LP, Mr. Tominiy Owolabi   in a report stated that 2024 experienced a wave of divestments and acquisitions that reshaped Nigeria’s oil and gas landscape, influencing the industry’s trajectory for the future.

The report stated, “Despite external factors such as shifting supply policies, energy transition pressures, and ongoing geopolitical tensions, Nigeria’s oil and gas sector has shown remarkable resilience.

“We are witnessing an uptick in Foreign Direct Investment (FDI) and the government’s push for a greener energy landscape through initiatives like the National Gas Expansion Programme, which underscores the country’s focus on positioning gas as a critical bridge in the energy transitions.”

According to the report, Oil price forecasts for 2025 suggest a potential decline due to oversupply concerns.

“A Reuters survey of 41 economists’ projects Brent crude averaging $74.53 per barrel, while the United States Energy Information Administration (EIA)’s outlook puts it at an average of US$73.58 per barrel. J.P. Morgan anticipates an average price of $73 per barrel, with prices possibly falling into the low $60s by year-end.

“These trends have been attributed to global supply expansion, geopolitical uncertainties, the rapid adoption of electric vehicles, and the anticipated increase in U.S. production under President Donald Trump’s administration,” the report added.