The Royal Bank of Canada, the Canadian Imperial Bank of Commerce, and Scotiabank have each flagged nine oil and gas companies that may have trouble repaying their debts.
The three financial institutions “each added nine oil and gas firms to their loan watch lists, the latest sign of trouble in the oilpatch,” CBC reports. “The names of those companies are kept confidential.”
RBC Chief Risk Officer Mark Hughes said the announcement was the result of a “name-by-name stress test” on the company’s fossil holdings. “Following this stress test, we’ve seen a small increase to our oil and gas watch list for closer monitoring,” he wrote in an email.
Scotiabank told CBC that 5% of its energy portfolio was on its watch list, and four loans had been given “impaired” status since the beginning of the year. CIBC reported one impaired loan.
“Impaired status is based on where we feel the loan that we have is now in danger of not getting repaid,” Bank of Montreal Chief Risk Officer Surjit Rajpal told investors last month. “If low oil prices persist this year, we expect our current loan loss rate to increase.”
Meanwhile, the Financial Post reports that banks may be out of luck if they try to sell off used oilfield equipment to cover fossil company bankruptcies.
“Recent auction results have included generally softer pricing in secondary markets, particularly for specialized equipment,” said Canadian Western Bank President and CEO Chris Fowler. “The cross-purpose yellow iron that can be used in forestry, oil and gas, municipal infrastructure, were down definitely, but not significantly.” But price drops were sharper with more specialized gear.