Nigerian Banks More Exposed Than Russian Banks To Fall In Oil Prices

Nigerian banks are more exposed than Russian banks to the fall in oil prices, Bloomberg reported on Thursday.

Nigeria’s largest lender, First Bank, and also Guaranty Trust Bank are two Nigerian banks that have the most at stake as oil prices tumble and thus strain Africa’s largest crude producer.

In Nigeria, oil firms account for around 25 percent of the nation’s bank lending, Olalekan Olabode, an analyst at Lagos-based Vetiva Capital Management, told Bloomberg via email on December 12. This figure is even higher than that of Russia, the world’s biggest oil producer (according to 2013 estimates by Wikipedia).

In Russia, the three largest Russian banks whom are most reliant on oil firms for lending are: OAO Sberbank whom relies on the industry for 2.2 percent of loans, VTB Bank at 8.1 percent, and Gazprombank at 16 percent, Bloomberg reports – citing company filing.

“The outlook for Nigerian banks is very (much) linked to what happens to oil prices,” Adesoji Solanke, a banking analyst in Lagos at Renaissance Capital, told Bloomberg. “Oil prices have significant economic implications for Nigeria, which eventually feed through to the banks.”

Nigeria, the largest economy in Africa, obtains nearly all export earnings and 70 percent of government revenues from oil, Bloomberg reported.

Brent crude prices have tumbled over 40 percent so far this year to the lowest level since May 2009 and have prompted the Finance Minister to propose an 8 percent budget cut in addition to the Central Bank hiking interest rates to a record in November to protect the nation’s currency, the naira.

Nigerian stocks fell into a bear market – over 20% fall – on November 7 and have continued to fall with the price of oil.

The Nigerian Stock Exchange Banking Index has dropped 30 percent this quarter amid investor concerns that oil firms could struggle to pay debt.  The naira has fallen 11% against the U.S. dollar this quarter which makes it more expensive for fuel suppliers to pay for their gasoline imports.  

The country specific Nigeria exchange traded fund (ETF), the Global X MSCI Nigeria ETF (NYSEARCA:NGE), which dedicates nearly half of its portfolio to the financial sector (around 44%), has come under tremendous strain as investors flee and have caused the ETF to tumble 43% since July 2.

NGE Global X MSCI Nigeria Index. Chart courtesy of StockCharts.