Shareholders of some commercial banks listed on the Nigerian Stock Exchange have threatened to sue and boycott further investments in the financial institutions, if the controversy surrounding the non-performing loans granted some oil firms is not revisited.
The threat came against the backdrop of the allegation that the management of the banks are not willing to renegotiate the refund of about N1.5 trillion loan facilities, given to oil firms in 2015, even when the price of crude oil in the global market had doubled, from $32 to about $60 per barrel.
Some of the highly exposed banks are First Bank of Nigeria Holdings, GTBank Plc, Sterling Bank Plc, Zenith Bank Plc, Fidelity Bank Plc, Ecobank Nigeria Plc, First City Monument Bank Plc, Access Bank Plc and United Bank for Africa Plc. They all account for about 70 per cent of the total exposure to the oil sector.
Most of the banks did not pay dividend in 2016, attributing the development to high exposure to the oil sector, which was comatose. Now, that the market is appreciating, we must benefit from it, as we are ready to ‘occupy’ the banks’ headquarters till they review the loans
While First Bank exposed 40 per cent of its total loan to the sector, GTBank Plc and Fidelity Bank each had 28 per cent of their total exposure to the oil giants; Skye Bank is exposed to the tune of 27 per cent, while Access Bank and Diamond Bank have total exposure of 25 per cent each in the oil sector.
Ecobank Nigeria and UBA each has 18 per cent exposure while FCMB has 14 per cent of its total exposure to the oil firms. The shareholders said it was discerning to dispose of their shares in the banks before the credits turned bad debt, a development which might make them lose their investments, as in the case of former Afribank, Bank PHB, Intercontinental Bank and Oceanic Bank, after they were bought by the Asset Management Company of Nigeria in 2008.
The shareholders’ grouse is that once the loan facilities given to the oil firms by the banks were reviewed, when the financial institutions slashed the credit by about 25 per cent, due to the lull witnessed in the global market, such issue should be revisited now that the crude price has appreciated by about 100 per cent.
The National Chairman, Progressive Shareholders Association, Mr. Boniface Okezie, alleged that the ploy was to short-change the investors at the end of the financial year, when the banks might say the lull in the oil sector had affected the returns due to shareholders. According to him, the oil firms should not have reviewed the loans when the price of crude oil went down, because they had made enough money from the subsidy, during the tenure of the late President Umaru Musa Yar’Adua.
He said, “The same oil cartels were holding this country to ransom. When the price of oil was higher in the international market, what did they do with the money? So, the banks must revisit their loan books and renegotiate with the oil firms, even with interest. It would be a plus to shareholders, and even enhance the bank’s profitability.
“Now that the interest remains at 14 per cent, if the banks are lending at 18 per cent, they can come down at the interest element and restructure the loans, because interest is where the money was building up that made it impossible for the oil firms to pay.
Despite the fact that we also have stake in some of the oil firms, we demand that the loan should be paid, or we sue the banks and boycott investments.” He further blamed the Central Bank of Nigeria for creating loopholes, which the banks took advantage of, as financial institutions have been hiding under this to enhance their balance sheets illegally.
“The banks have exploited the situation and that is why the banks’ shareholders’ funds and confidence have been eroded. These provisions are the cause of the loan loss and impairment.
So, if the banks are going for loan restructuring, the apex bank must investigate and ensure corporate governance is followed,” he added.
The National President, Constant Shareholders Association of Nigeria, Mr. Shehu Mikail, explained that restructuring oil firms’ loans to reflect the prevailing oil price was a welcome development.
Like Okezie, he alleged that the intention of the oil firms was to edge the shareholders of the banks out of the proceeds of the crude oil market. “Most of the banks did not pay dividend in 2016, attributing the development to high exposure to the oil sector, which was comatose.
Now, that the market is appreciating, we must benefit from it, as we are ready to ‘occupy’ the banks’ headquarters till they review the loans,” he said. Mikail disclosed that, while FCMB, Skye Bank and FBN Holding agreed with the oil firms that part of the loan should be forfeited, GTBank, Zenith Bank and UBA decided to extend the maturity date of the loans by two years. To him, such decisions should be reversed, because it would affect the banks’ investors.
“If they are not reversed, it will either reduce our shareholders’ fund or elongate our waiting period to earn from our investments. But if reversed, it will definitely impact positively on shareholders’ funds and increase banks’ profitability at the end of the financial year,” he added.
EXPERTS’ TAKE
However, investment analysts have warned the shareholders not to celebrate yet, because the global oil market has not fully recovered. An economist, Mr. Francis Ibukun, explained that when oil prices appreciated from a low price to a high price; it generally meant that production had been inadequate, with only the production that could be obtained at the prior lower price.
For the market to fully rebound, he said that the price must rise to a higher level, in order to encourage additional production. He noted that it was often believed that high oil prices could be recessionary and that the primary way of offsetting recessionary forces was by directly or indirectly adding debt at low interest rates.
He added, “With this increased debt, more homes and factories can be built, and more cars can be purchased. The economy can be forced to act in a more “normal” manner, because the low interest rates and the additional debt in some senses counteract the adverse impact of high oil prices.
“People often think that going from a low price to a high price is the opposite of going from a high price to a low price, in terms of the effect on the economy. This is not really the case.”
A financial analyst, Mr. Peter Adebayo, urged investors to be patient and not to put pressure on the banks to demand for more from the oil companies. He explained that the recent attacks in the Niger Delta region forced some oil firms like Seplat (UBA and FBNH’s client), Shell and Aiteo (GTB’s client) and Agip to shut operations, adding that it would take a while for them to rebound.
While he agreed that the development had substantially increased the NPL of the banks and might force them to declare losses at the end of the year, Adebayo warned that stampeding the banks would only cause chaos in the financial industry.
He said, “It is not illegal for banks to restructure their upstream oil and gas loans, due to weak oil prices or to adjust the payment streams and in some cases, extend the loan tenure, but it will be unrealistic to expect the firms to pay back within a year, when the price picks.
“It will take a longer period for the firms to get on their feet, because we have to consider the series of repairs and installing of new equipment they will do in the war ravaged communities.”
Meanwhile, other market observers collectively said that very often, oil companies would purchase derivative contracts that protect themselves from the impact of a drop in market prices for a specified time period (typically a year or two).
These companies will tend to ignore price drops for as long as these contracts are in place. However, efforts by The Point to get the banks’ responses to the allegations leveled against them by the investors did not yield results.
For instance, Head of Media Relations, FCMB Plc, Mr. Louis Ibe, said, “Wait for the reaction from the appropriate officer, who handles such issues.” Access Bank’s Head of Media Relations, Mr. Abdul Imoyo, promised to get back to The Point after several calls and emails sent to him, but did not.
The Head, Media Relations, GTBank, Mr. Meksley Nwagboh, promised to reply mails sent to him, but he had yet to respond.
