In an analysis review published on October 26, 2015, the rating agency Moody’s said a prolonged low oil price could cause Nigerian banks to see their cash flow in dollars drained and their balance sheet position strained.

After falling 5% last week, oil prices once again went above $32. This, according to observers, is due to the cold wind that blew over Europe and Northern American and which resulted in a slight increase in demand of oil and gas on the market. However, the current consensus settles on a $30 per barrel hypothesis for oil price.

A review of the situation on September 30, 2015 outlined two facts. First is that 40% of loans granted by banks in Nigeria are in US dollars. This in context where it is very difficult to reimburse such loans due to the restrictive currency policy adopted by government. In regards to assets, deposits in dollars fell almost 20% as compared to the same period in 2014. For now, balance is kept and these banks are holding their commitments.

Another risk brought by the current oil price crisis is the exposure to a single sector. Indeed, loans directed to the oil sector represent 24% of loans to economy, with some banks exhibiting a very high level of exposure. Such is in the case of First Bank of Nigeria Holdings (+45) and Sterling Bank (+40%).

Some of these loans have already been restructured but the greatest threat now is to see provision for doubtful debts exceeds initial forecasts as banks projected price per barrel of oil at $40 for 2016.

Finally, the scarcity of dollar in the Nigerian economy as a result of fall in price of oil poses would hamper earnings generated by foreign exchange services and advances in dollars, since financing these gets more expensive.

On December 22, 2015, the banks’ sub-sector index on the Nigerian Stock Exchange closed at +1.84%, representing a cumulative weekly progression of 9.45%. However, since the year started, this index has been showing a 15.4% negative.

Idriss Linge