$1bn loans put financial system at risk –Marketer
Banks have foreclosed further lending to importers and marketers of petroleum product in Nigeria. This is coming at a time when the over $2.2 billion loans to the downstream sector worsened liquidity problem rocking the lenders.
Over $1 billion out of the total loan was extended to the marketers alone, while the total facility is poorly serviced, raising interests to N160 billion and heightening fear of hiccups in petroleum products’ supply.
Marketers, comprising Major Oil Marketers of Nigeria (MOMAN), Independent Petroleum Marketers Association of Nigeria (IPMAN), and Depot and Petroleum Products Marketers Association (DAPPMA), confirmed that the banks have started to “tail” them over the loan, maintaining that operations of the financial institutions and the country’s financial system are under threat due to the loans.
Head, oil and gas investment section of a first generation bank told this newspaper that all the big banks have got their fingers burnt due to the loans, most of which, he said, are no longer performing.
They have, expectedly, begun to go after marketers as parts of strategies mapped out to recoup the non-performing loans. The strategy, he added, may differ from bank-to-bank.
“The entire financial system is in a mess buoyed by this humongous, but poorly funded loan facility,” the banker said after his anonymity was guaranteed based on the injury full disclosure of his name could inflict on the business interest of the financial institution he represents.
The marketers had earlier confirmed that the $1 billion outstanding debt was money borrowed from banks to fund importation during the subsidy regime, which has accumulated an interest of N160 billion.
The situation became messy, the debtors who rose under the aegis of Independent Petroleum Products Importers (IPPIs) said, because of the failure of the Federal Government to pay the interest on the loans as agreed.
The source, however, maintained that the banks have been so badly hurt with the situation, which has now worsened their liquidity problems.
On why lenders may no longer fund oil projects in the short to medium term, he maintained that all the big banks have got their fingers burnt; so, they are playing a cautious game.
“Seventy per cent of non-performing loans,” he said, “are incurred from oil and gas-related risk portfolios. So, it makes no meaning for banks to rush into the sector, at least for now.
It as well makes absolute no sense to direct facilities towards the downstream sector, where over $1 billion loans are poorly serviced by the debtors. “It, therefore, becomes natural for the affected banks to embargo further lending, which most of them have done.”
Oil and gas sector, he said, remains one of the biggest debtors of commercial banks. Statistics from the Central Bank of Nigeria (CBN), as of March 2016, put credit allocation to downstream oil and gas operations, natural gas and crude oil refining at N2.237 trillion.
The CBN data showed that the sector owed commercial banks over N2.272 trillion as at December 2015 and over N2.299 trillion in February.
In a communiqué issued at the end of their meeting in Lagos last weekend and signed by their legal adviser, Mr. Patrick Etim, the marketers, comprising MOMAN, IPMAN, and DAPPMA, said that banks’ operations and the country’s financial system are under threat due to the loans.
Their inability to pay or service the loans, they stated, has also stalled importation of fuel by the private marketers.
The problem of the banks, the marketers added, was compounded by the fact that they provided billions of dollars to finance the importation of cargoes of petrol by IPPIs.
“They opened Letters of Credit at approximate exchange rate of N197 per dollar. Petrol cargoes were supplied and sold by the IPPIs at the selling prices approved and subsidised by government and the subsidy payments were calculated using the above exchange rate.
“Now at the beginning of 2017, the banks have not liquidated the Letters of Credit from 2014 because of lack of foreign exchange from the government.
The outstanding matured Letters of Credit are currently over $1 billion. The Nigerian banks involved and the entire Nigerian banking system is at risk on account of these transactions,” the marketers said.
The communiqué added that there is little evidence that the government has seen the risks in further delaying the payments under the subsidy scheme.
“The exposed situation of the banks is exacerbated by the current trends in the petrol market. When the fixed pump selling price of petrol was increased from N97 to N145 per litre in May 2016, it was based on an exchange rate of N285 resulting in a 45 per cent increase.
On June 20, 2016 the naira was devalued from N285 to N305, which is an increase of seven per cent but the fixed pump-selling price of petrol has not been increased. This means that petrol must be subsidised,” the marketers added.
“A key term of the government’s contract with IPPIs is that the subsidy payments shall be paid to IPPIs within 45 days of discharge of petrol cargo.
It was also agreed that after 45 days, the government shall pay the interest charges on the loans taken by the IPPIs to finance the importation of cargoes of petrol.
The outstanding interest payments owed to IPPIs is currently over N160 billion,” said the marketers. The communiqué added that the outstanding claims arose largely from importation of petroleum cargoes authorised by the administration of Dr. Goodluck Jonathan’s government, stressing that since government is a continuum, the contracts of the Jonathan’s government will remain binding on successive governments.
Consequently, the marketers appealed to the government not to allow its inactions in handling the critical issues facing banks, airlines, manufacturers, electricity companies and other businesses expose consumers to suffering, adding that honouring contract agreements would help boost local and foreign investments.