By Jeffrey Sparshott
Banks in the U.S. are bracing for defaults on loans to the oil
and gas sector amid low oil prices this year, according to a
Federal Reserve survey.
"Banks expected delinquency and charge-off rates on such loans
to deteriorate over 2015, but they indicated that their exposures
were small, and that they were undertaking a number of actions to
mitigate the risk of loan losses," the Fed's Senior Loan Officer
Opinion Survey said. The survey addresses changes in loan terms and
standards in the first quarter of the year.
U.S. oil and gas companies went deep into debt during the energy
boom as they looked to cash in on new technologies that allowed
sizable increases in domestic energy production.
Those loans looked like a good bet while U.S. oil prices
approached $100 a barrel. But after peaking in June they tumbled,
reaching below $50 earlier this year. Prices have rebounded in
recent weeks but remain below $60.
The sharp reversal on prices has rattled the energy sector,
forcing firms to cut spending, lay off workers and try to conserve
cash.
The Fed survey found that banks' exposure to the oil and gas
sector was limited. Of those banks making loans to such firms, most
said they accounted for less than 10% of outstanding commercial and
industrial loans.
Still, the financial sector is taking steps to protect itself,
"including restructuring outstanding loans, reducing the size of
existing credit lines, requiring additional collateral, tightening
underwriting policies on new loans or lines of credit, and
enforcing material adverse change clauses or other covenants," the
survey said.
Elsewhere, commercial and industrial loan standards were little
changed.
In the real estate sector, though, standards appear to be easing
slightly, potentially aiding home builders and would-be
homeowners.
"Banks reported having eased lending standards for a number of
categories of residential mortgage loans over the past three months
on net," the survey said.
Commercial real estate lending standards also have eased and a
few large banks indicated they had eased standards on construction
and land development loans.
Sales of previously owned homes rose to the highest level in 18
months in March, the National Association of Realtors said last
month, a sign the housing market is gaining strength.
But U.S. home building has gotten off to a slow start this year.
Government data shows that in the first quarter of the year,
housing starts are averaging only 969,000 a month, compared with
just over 1 million last year.