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‘Why banks are cautious of financing oil sector’

Deposit Money Banks in the country are cautious of supporting investors in the oil and gas sector because of the unpredictability of the industry and fear of the operators not paying back.

The Director, Corporate Banking, Diamond Bank Plc, Mr. Samuel Egube, gave the reasons at the ongoing Nigeria Oil and Gas Finance Seminar in Abuja on Tuesday.

He said, “Some individuals think that investors in the oil and gas sector are good people and ask why banks are not supporting them? But the banks are not just looking at the people, but the corporations. The banks are looking at well developed business processes. And I mean processes that can be predicted.

 “There is also the issue of skill and trust. While you may have a lot of skill, if your processes are not strong and are not supportive of good business practices, then the organisation will behave differently.

“So, you are extremely skilful but your enterprise cannot be trusted to behave in a predictable manner. We like to support you because of the business you have, but we do not have confidence that when it comes to paying the banks back, the CEOs’ idea about diverting funds can be constrained by the organisation.”

Egube told the oil sector investors that organisational behaviour could be at variance with those driving it.

He noted that trustworthiness was very important to banks, adding that when organisations in a sector were known to have very weak credit culture and bad credit histories, the industry would be affected negatively.

“And that is why you see that people come with new companies but the industry does not forget that the owners of these companies have wrecked quite a few careers, have wrecked quite a few institutions and, therefore, cannot come back in another garment,” Egube said.

He further noted that the organisational and corporate business structure of a firm was also critical.

He said, “It should be noted that banks usually like corporations where it is not just one man that controls everything, which is typical in Africa. But the good thing we see from practice is that this industry tends to force people to behave differently because the money required is so huge; so, you just have to work with other people.

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