CBN Charges Banks On Management Of Oil And Gas Risk Mitigation

Yemisi Izuora
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The Central Bank of Nigeria (CBN) has urged commercial banks to put in place adequate risk mitigating techniques for the management of their Oil and Gas risk exposures which it said is subject for review during its regular risk-based supervision activities.

The charge is coming on the strenght of deferement of the application of its regulation on “Oil and Gas Industry Credit Risk Mitigation” as a result of the on-going implementation of the Basel II/III capital adequacy framework.

The bank via a letter to all banks dated January 7, said a new date would be communicated to all banks in due course.

The CBN had in a letter to all banks dated December 10, 2014 warned of the dire consequences of the falling oil price on loan advances to the oil and gas as well as the public sector, pointing out that the oil prices could decline further.

In the letter the apex bank said considering the quantum of exposure to the oil and gas sector, combined with risk management deficiencies revealed by the recent Risk Based Supervision, there is a need to proactively guard against a crystallisation of these risks.

“The CBN therefore considers it essential to ensure that banks have sufficient capital buffers to mitigate these escalating risk taking activities. Where exposure to the oil and gas sector (as defined by the International Standard Industrial Classification of Economic Sectors as issued by the CBN) is in excess of 20 per cent of total credit facilities of a bank, the risk weight of the entire portfolio in the sector will attract weight of 125 per cent for the purpose of capital adequacy computation,” she said in the letter titled: “Oil and Gas Industry Credit Risk Mitigation”.

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