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.



Advertisements

Latest Economic News

  • OPEC decision stabilizes oil prices, but for how long?

    Economic CBC News
    In one of the least surprising OPEC meetings in a while, members of the cartel of oil-exporting countries and their non-member allies agreed to extend oil production cuts on Thursday, which will support the price of oil and should continue to help pave the way for Alberta's economic recovery. Source
  • The case for BlackBerry at $45 US a share

    Economic CBC News
    BlackBerry Ltd. shares have been on a hot streak — rising more than 60 per cent in recent weeks — and one technology analyst thinks some of the company's new products have the potential to help push the stock to $45 US in three years. Source
  • Malicious hackers say they demanded $50,000 ransom for stolen Bell data

    Economic CBC News
    A pair of malicious hackers say they demanded that Bell pay a $50,000 US ransom to prevent stolen customer data from being shared online, according to a person claiming responsibility for the theft. That person — who communicated with CBC News via encrypted chat using the handle "exodus" — says a ransom email was sent to Bell on May 5, detailing the extent of the breach and the thieves' terms. Source
  • Kinder Morgan announces final investment decision on Trans Mountain pipeline

    Economic CTV News
    VANCOUVER -- Kinder Morgan says it will proceed with the $7.4-billion Trans Mountain pipeline expansion as long as it secures satisfactory financing for the project through its initial public offering. The Texas-based company, in conjunction with its indirect subsidiary Kinder Morgan Canada, announced on Thursday its final investment decision on the project, which is conditional on the successful completion of the IPO. Source
  • Amazon opens first brick and mortar New York bookshop

    Economic CTV News
    Online retail giant Amazon on Thursday opened its first brick and mortar bookstore in New York, selling a limited range of its highest-rated books and letting customers browse products as in times gone by. Amazon, which launched as an online bookseller in 1995 but which now sells everything from designer clothes to groceries, bided its time before venturing into the US cultural capital. Source
  • Ontario threatens its own protectionism in fight against Texas Buy American bill

    Economic CTV News
    TORONTO - Ontario has hired lobbyists in Texas and is threatening protectionist measures of its own as it tries to convince state officials not to pass a Buy American bill. Premier Kathleen Wynne claimed victory last month after a successful Ontario push to stop similar provisions in New York state. Source
  • Alberta Energy Regulator to reconsider Suncor tailings plan it rejected

    Economic CTV News
    CALGARY -- Alberta's energy watchdog has agreed to reconsider its rejection of a plan by oilsands giant Suncor to clean up its tailings ponds. The Alberta Energy Regulator denied the Calgary-based company's applications in March, saying they did not satisfy requirements and a new proposal was needed. Source
  • Bank CEOs say Home Capital issues not widespread

    Economic CTV News
    TORONTO -- The CEOs of two of Canada's biggest banks say liquidity troubles at mortgage lender Home Capital are not indicative of a broader problem, but they are monitoring their mortgage portfolios in light of concerns about high house prices. Source
  • Payment systems modernization long overdue: BoC official

    Economic CTV News
    OTTAWA -- A senior Bank of Canada official says modernization of the country's core payments infrastructure is long overdue amid the rapid advance of new technologies -- and the risks that accompany them. In prepared remarks of a speech, deputy bank governor Sylvain Leduc says the system must be able to keep up with new payment options that, in recent years, have included innovations like PayPal, e-transfers and Apple Pay. Source
  • Feds release details of delayed methane reduction plan

    Economic CTV News
    CALGARY -- Companies in the energy sector would be required to regularly check equipment for leaks, make repairs, monitor emission levels and report them to Ottawa under the federal government's proposal to reduce methane emissions. Source