Investment analyst at FSDH Securities have advised the Nigerian Banking industry to increase lending to other sectors of the economy that have local and export contents as viable alternatives towards overcoming the challenges of the current foreign exchange shortage in the country.
According to the investment advisers, the challenges in the upstream and mid-stream sector of the oil and gas industry continue to portend difficulties for bank lending. The low oil price has made a lot oil and gas loans not to be performing, adversely impacting the profitability of the Nigerian banks. They however noted that the liberalization of the downstream sector of the oil industry has opened up financing opportunities for Nigerian banks.
“Banks need to extend loans to the non-oil sectors to support the income diversification efforts of the Federal Government of Nigeria. Given the recent developments in the oil and gas, we expect banks to reduce their loan exposure to the sector. Nigerian Banks will need to develop constructive strategies to increase the share of non-oil loan in their portfolios” They advised.
The sectoral loan analysis of the banks as at end of 2015 showed that the banks had the highest exposure to the Oil, Gas and Mining sector. The Industry loan exposure to the Oil, Gas and Mining sector stood at N3.18 trillion, representing 25.25 percent of the total industry loan exposure of N12.6 trillion. This was followed by manufacturing sector which had N1.9 trillion representing 15.22 percent of the total industry loan exposure.
The banks had the least exposure to the power and energy sector, with a loan of N445.3 billion, representing 3.53 percent of the total loans from the banking industry, while the Agricultural sector was the second least having bagged 3.62 percent of banking loans, amounting to N456.8 billion.
FSDH who analysed the loan exposure of the banks, revealed that Sterling Bank had the highest exposure to the Oil, Gas and Mining sector, while Unity Bank had the least exposure.
Of the bank’s analysed, only Skye Bank, FCMB and Access Bank broke down their loan exposure to the sector into the upstream, services and downstream sub-sectors. Skye Bank and FCMB highest Oil and Gas exposure was to the upstream sector at 56.84 percent and 67.55 percent respectively. Access Bank’s highest exposure was to the downstream exposure at 43.59 percent.
The banks were nevertheless implored to find creative ways to develop agriculture and agro allied industries, manufacturing, real estates and construction, power and rail sectors, in order to support the Government’s role in facilitating the development and financing of these critical sectors of the economy.