Analysis: Zenith Bank says N95 billion of its Oil and Gas loans are non-performing

Zenith Bank’s latest financials indicate a significant uptick in its loan portfolio, particularly in the oil and gas sector. By the end of fiscal year 2023, foreign currency loans surged to $3.79 billion, up from $3.32 billion the previous year.

The oil and gas sector alone accounted for $1.91 billion, representing 50.3% of the bank’s US dollar loans and 25.7% of its gross loans. This substantial exposure, while reflective of the sector’s prominence in Nigeria’s economy, also underlines a notable concentration risk.

Despite the strategic importance of oil and gas, the sector’s volatility continues to challenge Zenith Bank’s asset quality.

For fiscal year 2023, oil and gas-related non-performing loans (NPLs) were N95.1 billion, a substantial figure that, while lower in percentage terms (30.65% of total NPLs compared to 44.37% in 2022), still signifies a considerable amount in absolute terms.

Overall, total NPLs increased to N310.3 billion in 2023 from N177.3 billion in 2022, indicating broader issues within the bank’s loan book. Other sectors also show rising concerns. General commerce NPLs rose sharply, constituting 27.89% of total NPLs (N86.5 billion), up from 14.71% (N26.1 billion) the previous year.

Consumer credit NPLs, at 10.72% of the total (N33.2 billion), though slightly down from 12.88% in 2022, still reflect significant defaults. Overall Zenith Bank’s loan impairment for 2023 was N409.6 billion.

The bank’s restructured loans provide another layer of complexity. These loans almost doubled to N1.30 trillion in 2023 from N716.8 billion in 2022.

The oil and gas sector remains the dominant segment, accounting for 90.8% of total restructured loans (N1.18 trillion). While restructuring offers temporary relief and the potential for recovery, it also signals underlying difficulties in the borrowers’ capacity to meet their obligations under normal terms.

Financially, Zenith Bank’s gross earnings for 2023 reached N2.13 trillion, a remarkable 125% increase from the previous year. Net interest income also rose by 101% to N736.2 billion.

However, impairment charges soared by 232% to N409.6 billion, significantly impacting net interest income after impairment, which stood at N326.6 billion, a modest 34% increase.

Despite the impairment charge, Zenith Bank reports it still has a strong capital adequacy ratio of 21.7% higher than the 19.8% recorded in 2022. Regulatory limits for capital adequacy ratio is 15%.

The bank’s profit before tax increased by 180% to N795.9 billion, and profit after tax jumped 202% to N676.9 billion, ironically thanks to its foreign currency holding.

Still, this sharp rise in impairment charges highlights the cost of the bank’s aggressive lending strategy, particularly in high-risk sectors like oil and gas. As a percentage of net interest income, loan losses represent a substantial burden, emphasizing the challenges in managing credit risk effectively.

Zenith Bank recently released its 2024 first quarter results indicating that it made a loan loss provision of N55.9 billion up from N7.7 billion a year earlier. While it did not provide a breakdown of the loans impaired, oil and gas will more than likely dominate the pile.

Zenith Bank’s new GMD/CEO, Dame (Dr.) Adaora Umeoji, understands the challenges more acutely than anyone else. She is exceptionally well-equipped to address and overcome these obstacles.


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