Banks Rule Out New Exposure to Aviation Sector


By Emele Onu, 07.18.2010


Many of the country’s banks have ruled out any new exposure to the aviation sector, especially the airlines, except in the future when the economic environment improves.The banks, according to THISDAY investigations, have merely deployed resources to participate in the aviation Fund, planned by the Central Bank of Nigeria (CBN), as part of the N500 billion intervention to critical economic sectors.


It was gathered that the modalities for disbursing the aviation component of the Fund has still not been worked out, owing to the peculiar nature of the sector – which is affecting decisions on the right funding and target carriers.A general manager with one of the banks said, “The authorities might have excluded some operators from benefiting from the fund, procedurally or technically, leaving such organisations with no alternative than return to the banks. But I know no bank will consider that sector a viable outlet for now; maybe in the future.”


The aviation sector has the highest leverage in the Nigerian economy, with a particular airline said to owe a bank N177 billion; yet the airlines remain cash strapped with compressed margins and structurally high direct operating cost that impair performance.According to the general manager, giving the banks further debt capital is putting off the doomsday. “Long term equity and convertible debt issues remain perhaps the only viable solution,” he said.


A loan of N1 billion for each airline remains a consideration at the CBN, with the monetary authority and the banks still finding it difficult to take the final decision; owing to criticisms in some quarters that N1 billion is small and that the same funding for all operators might be a recipe for financial confusion.THISDAY investigations revealed that the agricultural, manufacturing and tele-communications sectors rank high in the sectoral consideration of banks for deployment of risk assets.


Most of the banks have opted to increase the size of their risk assets by between 20 and 40 per cent in 2010, compared to the 2009 position, with the foregoing three sectors assuming key focus.It was also gathered that the new rule on margin lending, which requires banks not to commit more that 10 per cent of their total loan portfolio to that segment, has drastically cut banks’ exposure to investors and the capital market and thus released funds for investment in other growth sectors.   


The N500 billion Fund is to be channelled through the Bank of Industry (BoI) for on-lending to banks at a maximum interest rate of 1 per cent and for credit disbursement to organisations at not more than 7 per cent. With the airlines share of the Fund, the carriers can refinance their loans and amortise them over the long-term.






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