Africa: Nigeria’s banks stare down the barrel

By:
Kanika Saigal
Published on:

Inspired by the previous government’s agenda, Nigeria’s banks loaded up on loans to local oil and gas companies. The rapid decline in the price of oil has put many of the companies they lent to in distress. Can the banks cope with the potential fall-out?

First Bank of Nigeria’s modest head office is stationed at the marina in Lagos. Beyond the mid-morning traffic on the road in front of the building, past the shores of the marina, are two rather imposing oil rigs. 

When they first turned up, their presence confused locals. Oil rigs are usually stationed in oil producing regions in Nigeria, close to the Niger Delta, so why were they at the marina? Curious onlookers initially assumed that the rigs, which were owned by indigenous oil company SeaWolf Oilfield Services, were undergoing repairs and need not be in an oil producing region. But a closer look revealed that there was little, if any, maintenance work going on. 

  The truth is, Nigerian banks are hugely exposed to the oil and gas sector," says Dolapo Oni, oil and gas analyst at Ecobank. "Despite central bank regulations limiting exposure by banks to 20% of their total loan book, some have already exceeded this

Dolapo Oni, Ecobank

It was only once local media dug a little deeper that they found out why the oil rigs were there. They discovered that First Bank – Nigeria’s largest lender – had seized the oil rigs after SeaWolf failed to make a payment on a N25 billion ($125.6 million) loan. Following the debacle, Nigeria’s Asset Management Corporation (Amcon) took over SeaWolf and the rigs in question. The full story behind the repossession is yet to emerge.