Nigeria: Banks Worry as Power Firms’ Debts Worsen

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Many of the Nigerian banks that gave loans to core investors during the privatisation of the power sector in 2013 may have incurred losses, our correspondent has learnt.

It was gathered that the banks had, in the past four years, been struggling to ensure the repayment of the acquisition loans they granted to the power investors.

The privatisation of the power assets fetched about $3.2bn for the Federal Government, with the generation and distribution companies sold for $1.7bn and $1.5bn, respectively.

The assets were purchased with significant leverage, estimated to be 70 per cent debt and 30 per cent equity, with most of the debt provided by the local banks.

Loans to the power and energy sector stood at N768.27bn as of June 2017, accounting for 4.83 per cent of the gross loan portfolio of the nation’s banking system, up from 4.5 per cent (N726.29bn) as of December 2016, according to the latest Financial Stability Report of the Central Bank of Nigeria.

An energy analyst at Ecobank, Mr Kareem Jubril, told our correspondent that the power firms had become a major problem to the banking sector in terms of their outstanding loans, adding that banks had begun to write down some of the loans as losses.

He said, “Most of these power companies are highly indebted to Nigerian banks to the extent that most of the banks are writing down those debts. So, the chances are that even if they (power companies) want to make capital investment, they are not going to be able to secure the funding.

“They (banks) are beginning to take the heat as most of them are basically booking them as non-recoverable loans because if you look at the power sector and the loans that were extended to most of these power companies, the chances that the power companies will be able to meet their debt obligations are quite slim.”

An energy analyst and Partner at Bloomfield Law Practice, Mr Ayodele Oni, said many of the core investors in the power firms had restructured their loans.

“They have changed the tenor and the terms and conditions. The interest rate has changed; even some of them whose payment was in dollar now have it in naira. They might have reduced some of the interest, so it means that the amount due is reduced.”

According to the CBN Financial Stability Report, total non-performing loans in the banking sector grew by 14.59 per cent from N2.08tn at the end of December 2016 to N2.39bn at end-June 2017.

It said, “Consequently, credit risk increased as the industry-wide NPLs ratio rose from 12.8 per cent to 15.02 per cent at end-June 2017, reflecting a 2.22 percentage points increase compared with 1.1 percentage points in the preceding period.

“The increase was occasioned by the continued low level of oil prices and government revenue. It is expected that the NPL growth would moderate as aggressive debt recovery strategies are employed by banks.”

The report said composite credit risk remained elevated in the first half of last year with several obligors unable to service outstanding obligations.

“To address these concerns, in addition to engaging the banks, the CBN is in the process of developing a framework that will permit private asset management companies to participate in the resolution of non-performing facilities,” it added.

SOURCE: PUNCH

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