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

  • DavidsTea swings to loss on charges but says e-commerce improving

    Economic CTV News
    MONTREAL - DavidsTea Inc. says it swung to a loss in its last quarter as onerous contract charges and impairments weighed on its balance sheet. The specialty tea retailer says it had a loss of $16.1 million for the fourth quarter ending Feb. Source
  • Rogers profit rises by more than a third to $425M

    Economic CBC News
    Rogers Communications Inc. reported a $425 million net profit in its first quarter, up 37 per cent from $310 million in the comparable period last year. The wireless, cable, internet and media company's adjusted earnings grew even more, rising by 45 per cent to $477 million under new accounting rules that Rogers began using in the quarter ended March 31. Source
  • Ottawa's new privacy rules give businesses flexibility on reporting data breaches

    Economic CTV News
    OTTAWA -- Federal data breach regulations set to take effect Nov. 1 will require mandatory reporting of security breaches that pose a "real risk of significant harm," but give businesses flexibility about how that's done. Source
  • Spat breaks out between Tim Hortons franchisee factions over public complaints

    Economic CBC News
    The Tim Hortons franchisee advisory board is slamming a group representing at least half of the brand's restaurant owners for publicly making complaints about their parent company Restaurant Brands International Inc. In a letter to franchisees obtained by The Canadian Press, the board argues that the comments by the Great White North Franchisee Association criticizing the company in the media and to the federal government is corrosive and damaging to the Tim Hortons brand. Source
  • Acacia Mining production drops 45 per cent as Tanzania troubles persist

    Economic CTV News
    TORONTO -- A subsidiary of Toronto-based Barrick Gold Corp. says gold production at its Tanzanian operations plunged 45 per cent last quarter as it grappled with export restrictions from the country. London-based miner Acacia Mining, owned 64 per cent by Barrick, says the drop in production resulted from reduced operations at its Bulyanhulu mine and producing mostly from lower-grade stockpiles at its Buzwagi mine. Source
  • Supreme Court beer ruling could apply to Alberta-B.C. pipeline war, experts say

    Economic CTV News
    CALGARY -- A Supreme Court of Canada ruling on bringing beer from Quebec into New Brunswick has implications for the trade war between Alberta and B.C. over the Trans Mountain pipeline expansion. Experts say the court seems to be addressing the issue in its decision when it notes that while some trade barriers can be allowed in some circumstances, those designed to punish another province or to protect a local industry would not be permissible. Source
  • High cost of dental services prompting some patients to seek alternative options

    Economic CBC News
    An unaffordable price tag kept Melanie Laxson out of the dentist's chair until the pain became unbearable. With no access to insurance, the 38-year-old says there's no way she could afford the full cost of a dentist. Source
  • Canadian airline profits will fall in 2018 on higher costs: Conference Board

    Economic CTV News
    MONTREAL - The Conference Board of Canada says the growth of the country's airline industry will slow in 2018 as profits are forecast to decrease from last year's peak primarily because of higher fuel and labour prices. Source
  • Commodities volatile on $100 US oil talk

    Economic CBC News
    Talk that Saudi Arabia has its sights on $80-$100 US a barrel oil again and of more U.S. sanctions on Russia ignited a rally in commodities and resource stocks on Thursday, though the potential boost to inflation hit fixed-income assets. Source
  • Commodities rollercoaster on $100 US oil talk, sanctions stress

    Economic CBC News
    Talk that Saudi Arabia has its sights on $80-$100 US a barrel oil again and of more U.S. sanctions on Russia ignited a rally in commodities and resource stocks on Thursday, though the potential boost to inflation hit fixed-income assets. Source