This Day

Banks Groan Under N300bn Failed Loans

By Moses Obajemu, 10.31.2008

Thisday Investigation

Some Nigerian banks are currently groaning under massive weight of about N300 billion non-performing facility granted to some petroleum marketing companies to finance building of tank farms, product import and facility expansion, THISDAY has learnt.
Consequently, most banks have stopped lending to small operators in the sector.
A highly placed official of one of the affected banks said most of those who got the loan facility diverted the money from the original purpose for which the loans were meant, acquiring other “assets and liabilities” in the process.
He also said those who actually utilised the loans had managed the funds poorly, admitting some had been gravely affected by the changing dynamics in the international oil market.
This revelation is coming at a time when quoted companies on the stock exchange are said to have lost about N3.5 trillion in the value of their shares since March 2008.
Most of the bank stocks have been on a freefall from an all time high, triggering panic among investors.
Operators in the petroleum sector, according to investigation, sourced over N250 billion from banks as business seed capital.
In effect, the players are owing banks over N300 billion plus interests, which the debtors are not servicing and are not even in the position of liquidating, thereby causing panic in the banks that granted the facilities in the construction of the depots.
Competent sources informed THISDAY that some of the affected banks are gearing up to take over the tank farms and some of the assets used in guaranteeing the loans.
While the total combined storage capacities of the tank farms are up to 1,000,000 mts, the average availability at any time, according to reliable sources, is about 100,000mts.
The rush to establish tank farms was in response to boom expectations. Sources revealed that banks are jittery over how to recoup their funds. Market watchers however appear to have little sympathy for the banks as they point out that the banks themselves cannot escape culpability.
“Banks are known to have often deployed shareholders’ funds to finance loss transactions because there is a lack of comprehensive risk assessment of importers (independent marketers who are basically traders of refined products), which implies loss via traders’ losses. They always shy away from supporting real sector principally because of the long gestation period, they go for traders because of quick returns,” a market analyst told THISDAY.
Some market watchers believe banking sector regulators should come in for some knocks “for not leaning on their recent sterling reform efforts” to sanitise untoward practices that smear and endanger the sector.
As it is now clear from emerging facts that operators in the downstream petroleum sector may default in repaying these loans, this has sent shock waves into the banking sector because of its financial implications.