Home / Untapped loans double Canadian banks oil exposure to $107 billion
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Untapped loans double Canadian banks oil exposure to $107 billion

Canadian banks’ exposure to the struggling oil-and-gas industry totals $107 billion when including untapped credit lines, double the amount highlighted in recent results.

Canadian banks’ exposure to the struggling oil-and-gas industry totals $107 billion when including untapped credit lines with outstanding loans, according to a review of company filings.

That’s double the $50 billion in total outstanding loans generally highlighted by Royal Bank of Canada, Toronto-Dominion Bank and the country’s four other large lenders in quarterly earnings calls and presentations. The figure represented 2 percent of total lending as of Jan. 31.

That only describes part of the picture.

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The banks also have exposure in the form of commitments, such as credit lines. They can potentially increase a bank’s risk, because the weakest borrowers often tap their entire credit line when nearing default. The banks’ exposure to oil-and-gas companies from outstanding loans and commitments range from about $5 billion for National Bank of Canada to $32 billion for Bank of Nova Scotia.

Borrowing the full amount before the credit line is cut helps companies preserve liquidity to keep paying their bills, and gives them leverage to negotiate with their creditors. For example, Royal Bank is among the lead lenders to SandRidge Energy Inc., which drew its entire $500 million credit line in January. The Oklahoma City-based company then missed a bond interest payment on Feb. 16, starting a 30-day countdown to default unless the coupon is paid or an agreement is reached with its lenders.

‘Really Lax’

“The banks really don’t have a lot of recourse to prevent you from drawing the credit line,” said Jason Wangler, an energy analyst at Wunderlich Securities in Houston. “They were really lax last year on covenants and it’s starting to cost them.”

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