Banks to Seek Reprieve from FAAC over NNPC’s $1.5bn Debt

Commercial Banks exposed to the $1.5 billion debts owed oil traders by the NNPC are considering making a case for the liquidation of the debts through the FAAC

Commercial Banks exposed to the $1.5 billion debts owed oil traders by the Nigerian National Petroleum Corporation (NNPC) are considering making a case for the liquidation of the debts through the Federation Accounts Allocation Committee (FAAC), THISDAY has learnt.

THISDAY gathered that the modalities for this approach are being worked out for presentation to the incoming government as the affected banks are concerned that the non -payment will erode their liquidity positions and affect their operations drastically.

A top ranking official of one of the affected banks told THISDAY at weekend that with the stringent liquidity and cash reserve limits being implemented by the Central Bank of Nigeria, such huge outstanding loan to the oil traders was unhealthy to the banks.

“You are aware of the stringent liquidity and cash reserve limits being implemented by the Central Bank of Nigeria. Having so much outstanding loans due to credit facilities extended to oil traders is not healthy for us as there is a huge risk of the monies not getting paid. You will recall that similar bad loan exposure to the energy sector was one of the key factors responsible for the collapse of defunct institutions like Oceanic Bank, Intercontinental and others. We are facing that same risk today,” he said. He further stated that getting funds from FAAC to liquidate the debts seemed to be one of the most plausible solutions to the crisis, which has contributed to the epileptic supply and scarcity of fuel across the nation.

“Making a case for us to be settled from FAAC is an option we believe the incoming government should seriously consider. This will help us recover our lost position and safeguard the banking sector from the possible threat of the last crisis. This will avert massive job losses and free up funds for small business and real sector funding,” the source added.

The inability of NNPC to liquidate over $1.5 billion debt owed local and international oil traders involved in the importation of petroleum products on behalf of the corporation remained a threat to the long-term sustainability of supply of products in the country,

NNPC owes trading companies over $1.5 billion dating back to 2010, further confirming concerns that have been raised over the long-term effectiveness of the corporation and its ability to meet its obligations.

THISDAY learnt that just as the banks were seeking avenues to facilitate the liquidation of

the NNPC debts, the affected oil traders are also planning to petition the incoming government over the debts.

“NNPC does not pay interest on delayed payments. When the import tenders were conducted in 2009, the pricing assumed a payment for the supplied products within 45 days after Notice of Readiness (NOR). We got bank facilities to finance these imports at rates of 12 per cent or 15 per cent per annum. Can you imagine the cost to us owing to the inability of NNPC to repay? All our profit has been wiped out and the banks have been chasing us to repay the loans,” said a top official of one of the trading companies.