As the Eurozone crisis continues to eat deep into the European economies, indications have emerged that international banks and other financial institutions have further cut down credit lines to Nigerian and other African banks.

Our correspondent gathered from senior officials in the banking sector that various local banks were recently denied credit lines by their foreign counterparts, which had continued to adopt contraction measures as advised by the International Monetary Fund.

A credit line is an arrangement in which a bank or vendor extends a specified amount of credit to a specified borrower for a specified period of time.

An Executive Director with a Nigerian bank with an international licence told our correspondent that the European banks had further reduced their risk exposure, thereby disapproving proposals from banks all over the world, especially those from Africa.

The banker, who did not want his name mentioned, said, “Foreign banks are cutting down on their expenses massively. They have further cut down their lines of credit to smaller banks. It is part of the measures and advice given to them by the International Monetary Funds.

“It is not new that European banks have reduced their lines of credit to Nigerian banks. In 2011, they were still granting these lines depending on projects and proposals. But now, they have cut down seriously on the lines.”

Nigerian banks have over the years established relationships with their foreign counterparts with the objective of mutual assistance in the areas of credit lines, technical support and information technology, among others.

The credit lines, which also represent money used by the foreign correspondent banks to help the local banks settle foreign currency denominated trade transactions to customers, are usually recalled gradually.

But following the global financial crisis, many foreign credit lines have either been cancelled or recalled because of growing pressures on the foreign banks to meet their financial obligations to their customers.

Some of the correspondent banks, which Nigerian banks have relationship with are HSBC, Citibank, JP Morgan Chase, US Ex-Im Bank, BNP Paribas, UBS AG, ANZ Commerzbank and ING of Belgium to mention a few.

Another senior banker, who pleaded anonymity, told our correspondent that while Nigerian banks were recovering from the global credit squeeze, some of the foreign correspondent banks were still in the mess.

“It is very hard to get a credit line from a foreign bank now. All Euro countries have resorted to tightening monetary policies. In the same way, the banks have reduced their loans and credit lines,” he said.

The Managing Director, Financial Directives Company Limited, Mr. Bismarck Rewane, predicted that there would be more austerity measures in the Eurozone in 2012.

He said, “The European countries have predicted reduction in growth rate this year. They are also pursuing austerity measures, which will definitely make foreign banks cut down their credit lines to Nigerian banks.”

“It is going to affect some developmental projects because most of the credit lines come from Europe. And if there will be tightening in their activities, it will also affect Nigerian banks in getting lines from them.”

Speaking in the same vein, the Chief Executive Officer, Vintage Wealth Managers Limited, Mr. Idowu Ogedengbe, said the ability of Nigerian banks to mobilise foreign credit had reduced due to crisis in the Eurozone.

“The credit limits are not as visible as they were before. The Euro crisis has affected them. Apart from the Euro crisis, some of the banks have defaulted in servicing the credit lines. Hence, the banks want to reduce their risk exposure,” Ogodongbo said.

Foreign banks, which used to fund activities in the upstream and downstream sectors in the oil and gas sector had earlier cut back funding to the sector following the alarm raised by the Central Bank of Nigeria that some Nigerian banks were not healthy.

The withdrawal by the foreign banks mostly affected oil and gas projects executed by indigenous contractors, as well as importation of petroleum products.

Before the Eurozone crises started, most of the offshore transactions by the indigenous operators in the oil and gas sectors were accessed from foreign banks through local banks.

Source: Punch/Ademola Alawiye