By Michael Eboh

Union Bank Nigeria Plc lent about N193.6 billion to energy firms in two years, 2013 and 2014, amid fears by the Central Bank of Nigeria, CBN that Nigerian banks are in danger of capital erosion due to falling oil price in the international market.

Union Bank, according to its Consolidated and Separate Financial Statements for the year ended, 31st December 2014, granted N116.562 billion loans to energy customers in 2014, compared to N77.037 billion in 2013.

Union Bank’s total loans to customers in 2014 stood at N312.797 billion compared to N229.542 billion in 2013. The loans granted to energy firms represent 37.26 per cent of the total loans in 2014, and 33.56 per cent of 2013.

Specifically, in 2014, oil and gas firms were granted N93.537 billion loans and power firms got N23.025 billion. While in 2013, the Bank granted N63.380 billion loan to oil and gas customers, and N13.657 billion to power firms.

For the two years, oil and gas firms got N156.917 billion from Union Bank, while power firms got N36.682 billion.

Non-performing loans

The bank’s total non-performing loans rose by 15.93 per cent to N16.934 billion as at the end of 2014 financial year, compared to N14.607 billion in 2013. According to the bank, its total non-performing loans to total gross loans stood at 5.03 per cent and 5.86 per cent in 2014 and 2013 respectively.

Analysis of it loans portfolio revealed that Notore Chemicals Industries’ term loan of N6.463 billion in 2013, compared to N7.352 billion in 2013 was classified as a non-performing loan.

Also, Union Bank classified Notore Chemicals’ N1.185 billion overdraft facility as non-performing in the 2014, bringing total non-performing loans and advances granted Notore at N7.648 billion.

The CBN had in its Financial Stability Report for December 2014, warned that financial institutions in Nigeria will be at grave risk in 2015 due to the low prices of crude oil in the international market and their huge exposure to oil and gas firms.

The CBN said that oil and gas firms owe financial institutions about N3.24 trillion, adding that low crude oil prices will pose a significant risk to Nigeria’s financial system and might lead to an increase in Non-Performing Loans, NPLs.

According to the CBN, anticipated sources of risk in the financial system in the first half of 2015 would include declining crude oil prices, due to US’ shale oil and gas production and the resultant pressure on the Naira exchange rate.

The CBN, however, advised banks to strengthen their contingency plans and conduct regular stress tests in order to mitigate the impact of oil prices crash on their balance sheets.