Bloomberg London
FIRST Bank, Nigeria’s largest lender, and Guaranty Trust Bank are among banks with the most at stake as tumbling oil prices strain the economy of Africa’s biggest crude producer.
Oil companies accounted for 25 percent of bank lending in Nigeria, Olalekan Olabode, an analyst at Lagos-based Vetiva Capital, said this month
That’s even higher than in Russia, the biggest oil producer.
Among the three largest Russian banks, OAO Sberbank relies on the industry for 2.2 percent of loans, VTB Bank 8.1 percent and Gazprombank 16 percent, company filings show.
“The outlook for Nigerian banks is very linked to what happens to oil prices,” said Adesoji Solanke, a banking analyst at Renaissance Capital in Lagos.
“Oil prices have significant economic implications for Nigeria, which eventually feed through to the banks.”
Nigeria, Africa’s biggest economy, derives almost all export earnings and 70 percent of government revenue from oil.
The price of Brent crude has dropped more than 40 percent this year to the lowest since May 2009, prompting Finance Minister Ngozi Okonjo-Iweala to propose an 8 percent budget cut last week.
The central bank raised interest rates to a record last month to protect the naira.
The Nigerian Stock Exchange banking index has dropped 30 percent this quarter, reflecting investor concerns that petroleum companies may struggle to pay debt.
Non-performing loans would climb to between 5 percent and 10 percent by the end of 2015 from less than 3 percent now, Fitch Ratings said in a note on Saturday.
While oil producers’ earnings could be eroded by reduced income from sales of crude, the depreciation of the naira, which has fallen 11 percent against the dollar this quarter, also makes it more expensive for fuel suppliers to pay for petrol imports.
Nigeria only has refining capacity to meet 30 percent of the country’s demand.
“The sliding oil price poses a threat to banks’ performance as asset quality deteriorates amid a tougher operating environment,” Olabode said.