Oil and gas owes 23.8 per cent of the N13.5 trillion loans given by banks to key sectors of the economy, the Central Bank of Nigeria (CBN) has said.
The statistics, contained in the Financial Stability Report released by the CBN said 50 per cent of the oil and gas loans were on default, noting that after a top-down (TD) balance sheet stress tests on the 22 licensed banks (DMBs), the industry is still resilient.
Its Director, Financial Policy and Regulation Department, Kelvin Amugo, said the report, which is for last June, indicated that although the proportion of credit to the sector declined by 0.6 percentage points against December last year position, credit to the sector grew by 26.3 per cent in absolute terms, similar to the rate of the total credit growth.
He said the industry Capital Adequacy Ratio (CAR) remained above the prudential hurdle rate at 13.55 per cent but was 0.52 percentage points lower than it was in December under the same scenario.
He said the stress tests assessed the resilience of banks to a wide range of risk factors, including credit, interest rate, foreign exchange rate and liquidity risks.
The stress tests quantified the impacts that shocks on these risk factors, based on historical antecedents and expert judgments, could have on the capital positions of the banks. Resilience of the banking system to the shocks was assessed against defined prudential hurdle rates.
The TD stress tests are usually applied on a bank-by-bank basis and on an aggregate basis to determine the impact of specific stress scenarios on the banks.
He said vulnerability to credit concentration in the oil and gas sector manifested under the shock scenario of a 100 per cent credit default. Under this shock scenario, industry CAR declined to negative 0.45 per cent, reflecting 3.68 percentage point decrease compared to the same situation in December last year. This deterioration in the industry resilience was driven by increased vulnerability of the large and medium banks to credit concentration in the oil and gas sector.
Furthermore, banks were classified into three broad groups for systemic and peer assessment. Banks in the “large” category had assets greater than or equal to N1 trillion. The “medium” category comprised banks with assets less than N1 trillion but more than N500 billion while the “small” category comprised banks with assets less than N500 billion.
Furthermore, the test showed that capital position of ‘three small banks’ have fallen below regulatory threshold. The CARs of the affected banks were below five per cent regulatory position. The three banks are not among the domestic systemically important banks (D-SIBs).
CBN Deputy Governor, Financial System Stability, O. J. Nnanna, said the goal of financial system regulators remains the enhancement of the stability of the financial system and its resilience to withstand unexpected adverse shocks while contributing to the growth of the real economy.
“A stable financial system should facilitate economic growth and development necessary for improved standard of living. This edition of the Financial Stability Report has highlighted the need for effective coordination among fiscal, monetary and regulatory authorities, which would help in the achievement of policy goals and targets while ensuring sustainable economic growth,” he said.
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