Banks add oil and gas firms to loan watch lists

CALGARY -- They are the early warning signs that a company may struggle to repay its debts: watch lists.

In releasing their latest quarterly earnings, Royal Bank, CIBC and Scotiabank each added nine oil and gas firms to their loan watch lists, the latest sign of trouble in the oilpatch.

See Full Article

The names of those companies are kept confidential.

Gordon Sick, a finance professor at the Haskayne School of Business at the University of Calgary, said many energy companies are struggling and likely behind in their loans.

"There's a lot of them who are potentially in default," said Sick. "The banks in Canada are potentially looking at some hits."

Royal Bank's watch list grew after it did a name-by-name stress test on its oil and gas portfolio, said chief risk officer Mark Hughes.

"Following this stress test, we've seen a small increase to our oil & gas watch list for closer monitoring," Hughes said in an email.

The watch list has the banks keeping a close eye on the companies, and is one step before impaired status when a bank considers the loan at risk of default.

Scotiabank said five per cent of its energy portfolio was on the watch list and it moved four loans to impaired status in the first quarter. CIBC said it impaired one loan.

Like the other big banks, oil and gas loans only make up a small portion of Royal Bank's total holdings, Royal Bank CEO David McKay emphasized in a conference call with investors last month.

The Bank of Montreal saw a $200 million increase in gross impaired loans in the last quarter. Close to half of that represented loans to the oil and gas sector, said Surjit Rajpal, the bank's chief risk officer.

"Impaired status is based on where we feel that the loan that we have is now in danger of not getting repaid," Rajpal told investors last month.

"If low oil prices persist this year, we expect our current loan loss rate to increase."

Sick said the banks are doing what they can to accommodate companies and keep loans alive. They would also likely push for a merger or sale before resorting to calling in loans and triggering a full bankruptcy, said Sick.

But the financial picture isn't improving for Canada's oil and gas companies, with the credit ratings agencies also making waves of downgrades.

Moody's recently downgraded Canadian Oil Sands, Cenovus Energy and Encana Corp. to speculative grade, and further downgraded Baytex Energy Corp., Paramount Resources Ltd., MEG Energy Corp. and Bellatrix Exploration Ltd. into the 'C' level credit ratings.

Sick said the agencies look especially at two key metrics when assessing companies: how much higher cash flow is than interest payments, and how the overall value of the company compares with its debts. When either of those ratios are off, it could lead to a lower rating.

"You're getting into situations where the cash flow is the same as the interest owed or even less, and that's where you're definitely going to be in the junk bond," said Sick.


Latest Economic News

  • Facebook to allow more graphic, potentially disturbing news posts

    Economic CTV News
    Facebook on Friday said that it will begin allowing more graphic or potentially disturbing newsworthy posts to be shared at the leading online social network. "We're going to begin allowing more items that people find newsworthy, significant, or important to public interest -- even if they might otherwise violate our standards," Facebook vice presidents Joel Kaplan and Justin Osofsky said in a blog post. Source
  • 'The whole system is rigged': An insider exposes what stands between you and the ticket you want

    Economic CBC News
    There are a lot of hot tickets out there that any fan would feel lucky to get. But your chances of scoring a seat — let alone a good one — may not have much to do with luck at all. Source
  • Emails show Clinton campaign weighing Keystone XL decision

    Economic CTV News
    WASHINGTON -- Hacked emails show Hillary Clinton's campaign wrestled with how to announce her opposition to construction of the controversial Keystone XL pipeline without losing the support of labour unions that supported to project. Emails published this week by WikiLeaks show debate and confusion within the Clinton camp as it faced down the unexpectedly strong primary challenge by liberal Sen. Source
  • Quick Facts: Some of the details about the proposed Canada-EU trade deal

    Economic CTV News
    OTTAWA -- The Comprehensive Economic and Trade Agreement between Canada and the European Union, also known as CETA, appears to be close to foundering on the objections of a small region of Belgium. Here are some facts about the deal: Source
  • NY enacts restrictions on Airbnb, with fines of up to $7,500

    Economic CTV News
    ALBANY, N.Y. -- New York state enacted one of the nation's toughest restrictions on Airbnb on Friday with a new law authorizing fines of up to $7,500 for many short-term rentals. The measure signed into law by Democratic Gov. Source
  • Loonie dips below 75 cents — and may have more to fall, analyst says

    Economic CBC News
    The Canadian dollar traded below 75 cents US Friday, for the first time since March. The almost one-cent drop comes partly because of signals from the Bank of Canada — although the central bank is likely fine with a lower loonie. Source
  • Ottawa proposes shifting some risks to lenders in cases of insured mortgage defaults

    Economic CBC News
    The federal government said Friday it wants to hear from players in the financial industry on the topic of lender risk sharing, a move that could see mortgage lenders absorb a portion of the losses if insured mortgages that default. Source
  • Child porn accuser drops lawsuit against ex-Subway pitchman Jared Fogle

    Economic CTV News
    INDIANAPOLIS -- The family of one of Jared Fogle's victims in the child pornography case that led to the former Subway pitchman's imprisonment is dropping their lawsuit against him. A motion filed Thursday in federal court in Indianapolis requested that the lawsuit be dismissed with prejudice, meaning it cannot be brought back to court. Source
  • Tesla may enter ride-hailing business next year

    Economic CTV News
    DETROIT -- Electric car maker Tesla Motors has plans to get into the ride-hailing and sharing businesses. The company hinted at the venture earlier this week when it announced that all of its cars would come equipped with hardware needed to drive themselves. Source
  • N.Y. brings in tough regulations on Airbnb

    Economic CBC News
    Airbnb, the online lodging service that investors now believe is worth $30 billion, faces a reckoning. In eight years of torrid growth, the company has often clashed with local public officials seeking to minimize the impact of short-term rentals on neighbourhoods and urban housing markets. Source