Banks Step Up Oil Sector Loan Reviews as Regulators See Risk
by Dawn Kopecki
June 24, 2015 — 8:00 AM EDT
Updated on June 24, 2015 — 12:24 PM EDT
U.S. banks are stepping up the frequency of credit reviews for oil producers as regulators flag the “emerging risk” from the precipitous decline in the commodity’s price over the past year.
Lending to oil and natural gas producers poses a bigger threat to U.S. banks than most other industrial sectors, said Bill Haas, deputy comptroller for midsize bank supervision at the Office of the Comptroller of the Currency, which regulates 1,620 national banks and thrifts. The OCC’s National Risk Committee in April put oil and gas lending near the top of its list of threats that warrant closer scrutiny, given the unpredictable swings in oil prices, he said.
In response, bankers have reduced credit lines and are updating internal pricing models used to value oil and gas reserves more often than the usual twice a year, Matthew White, associate deputy comptroller, said in an interview. “We’ve heard of institutions doing that monthly or weekly in the height of the decline to make sure they stay on top of the emerging risk,” he said.
That’s making it harder to access capital as more drillers fight to stay afloat amid persistent low oil prices. Among the 28 U.S. companies that defaulted on their debt through May this year, 11 were energy firms with $3.5 billion in outstanding obligations, according to Fitch Ratings Ltd. As a group, the sector’s credit ratings have taken a nosedive in recent months, falling at a faster rate than other industries.
Credit Deterioration
Bank examiners started noticing some oil and gas companies running into problems staying current on their loan payments this quarter.
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http://www.bloomberg.com/news/articles/2015-06-24/bank-regulators-step-up-credit-reviews-as-drillers-struggle
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