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2 Feb 2016
CAD: Could banks slip on oil? - Nomura
FXStreet (Delhi) – Research Team at Nomura, suggests that low oil prices are likely to lead to rising exposure to oil producers, but no stress is visible yet.
Key Quotes
“With oil prices reaching levels not seen in more than a decade and likely to be below breakeven costs of many producers, there are increased concerns that the situation could adversely affect Canadian banks.
We estimate that major banks’ direct exposure to the oil and gas sector is C$42bn or about 6% of their business loans, while impaired loans to the sector only amount to C$0.65bn (0.07% of business loans). Including related sectors (such as suppliers and other sectors affected by low commodity prices), exposure is estimated at about C$123bn (17% of business loans) and impaired loans are C$1.2bn (0.25% of business loans).
At this point, we think there is no imminent threat to the banks; however, continued weakness in commodity prices is likely to lead to greater exposure and a rise in impaired loans. The situation will require regular monitoring, as significant losses by the banks could have a very negative effect on the economy.”
Key Quotes
“With oil prices reaching levels not seen in more than a decade and likely to be below breakeven costs of many producers, there are increased concerns that the situation could adversely affect Canadian banks.
We estimate that major banks’ direct exposure to the oil and gas sector is C$42bn or about 6% of their business loans, while impaired loans to the sector only amount to C$0.65bn (0.07% of business loans). Including related sectors (such as suppliers and other sectors affected by low commodity prices), exposure is estimated at about C$123bn (17% of business loans) and impaired loans are C$1.2bn (0.25% of business loans).
At this point, we think there is no imminent threat to the banks; however, continued weakness in commodity prices is likely to lead to greater exposure and a rise in impaired loans. The situation will require regular monitoring, as significant losses by the banks could have a very negative effect on the economy.”