FBN boss defends N2.2tr oil and gas loans exposure

First Bank Holdings has ruled out loan loss in the oil and gas sector, saying all the assets for which the loans were given are viable.

The bank admitted to heavy credit exposure but insisted that there would be no loss of funds resulting from the loans, as the worst outcome may be to extend the time frame for repayment (tenor) where necessary.

FBN Group Managing Director and Chief Executive Officer, Bisi Onasanya, made this clarification while fielding questions from financial journalists during the bank’s presentation of facts behind the figures at the Nigerian Stock Exchange (NSE) in Lagos.

The bank is exposed to about N2.2 trillion, about 40 per cent of its loan portfolio in 2014, which gives stakeholders cause for concern.

But Onasanya explained that the decision to finance local companies’ acquisition of the oil block assets of foreign entities is a developmental responsibility of the bank.

Said he: “Let me make this statement, and I think I have made it before. At the time foreign firms were divesting from those oil blocks that they were forced to divest from, if no Nigerian bank came forward to finance them, which bank could have financed the transfer of those assets into the hands of Nigerians?

“So, we see this as part of our developmental responsibility as a national financial institution. What we did is to take position, finance the transfer of those assets. In a lot of cases, no institution was willing to finance them from the international environment.

“So, FBN came in and provided opportunity for Nigerians for once to take part in the major sector that drives the growth of the economy. And these wells are producing wells.

“So, I want to douse the anxiety and fears of people about the exposure to oil and gas loans. There are three major segments but we are being very cautious the way we handle the loans. And I can assure you that there is no cause for alarm.

“The oil wells are producing. The cash flows are coming and they are able to service all the obligations.”

Onasanya said the bank has deployed hedging strategies to shield it from losses in case oil price drops below the deck price of $50 per barrel at which the facilities were rescheduled.

There are three segments of oil and gas financing with different levels of risks. Among them is importation of petroleum products, a downstream business involving trade financing with limited risk.

FBN has about 19.5 per cent of total loan portfolio in this segment because of its developmental responsibility as opposed to profit making.

“In spite FBN’s heavy participation in this downstream sector of the oil business, you can still see long queues returning at petrol stations. And the risk here is very minimal because it is trade finance risk.”

The second segment is the upstream, the financing of production of crude oil, which accounts for 10 per cent of the bank’s total loans portfolio.

“We do not take exploration risks in the entire portfolio. If you look at the participation of FBN in the upstream segment, there is no participant doing exploration. Exploration means prospecting for oil as distinct from production.

“And there is no oil well that FBN financed that is not producing well. The cash flow to support the payment is based on cash flow generated in production from those wells and other businesses.

“In almost all cases, we have the domiciliation of the proceeds of the crude oil sales coming directly to the bank for the bank to take its own deck service portion and then balance of issues.”

The last segment is the midstream, which involves financing the contracts of oil majors which have contractors.

FBN engages the services of hedge contractors who will pick up the loss if oil price drops below the hedge deck on which it has fixed the hedge contract.

“If oil price was going for $100 as it were in those days, we will sensitise our cash flow to see if that facility can be rebased on $50 per barrel, which was what we did. So, even if oil price falls to $50 per barrel today, the worst that will happen is to elongate the tenor for the repayment of the loan.

“It does not necessarily mean that the facility is bad because all the wells will continue to produce. The cash flow is reduced. However, you can stretch by additional one year or two the repayment tenor of the facility.”