latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/energy-concentrated-us-banks-may-face-credit-issues-as-prices-fall-57694855 content esgSubNav
In This List

Energy-concentrated US banks may face credit issues as prices fall


Insight Weekly: US stock performance; banks' M&A risk; COVID-19 vaccine makers' earnings


S&P Capital IQ Pro | Powered by Expert Insights

451 Research Podcast

Next in Tech | Episode 41: IoT's Role in Energy and Utilities


Insight Weekly: LNG exports surge; investors unfazed by inflation; neobanks drive VC funding

Energy-concentrated US banks may face credit issues as prices fall

Some U.S. banks with significant exposure to the oil sector were already having credit quality issues last year, and the recent drop in oil prices could lead to more delinquencies.

Oil prices have fallen sharply since OPEC+, an alliance of nations that accounts for roughly half of global oil production, failed to reach an agreement on its crude oil production target.

Prompt-month Brent crude oil futures — contracts that are closest to expiration, usually for delivery in the next calendar month have closed under $30 per barrel since March 17, 2020, the lowest levels since January 2016. Since the beginning of 2020, oil futures are down 51%, closing at $28.47 per barrel on March 19, 2020. Prompt-month Henry Hub natural gas futures have fallen by 22% since the beginning of 2020 and are down 44% since the beginning of 2019.

Banks headquartered in Louisiana, Texas and Oklahoma saw their stock prices fall sharply in response.

Of banks analyzed by S&P Global Market Intelligence, Bank of America Corp. had the most total energy loans, but the exposure was only 1.7% of total loans. According to the bank's 2019 annual filing, its provision for credit losses, including unfunded commitments increased $425 million year over year, due in part to energy reserve releases in 2018.

As a portion of total loans, Tulsa, Okla.-based BOK Financial Corp.'s 18% energy exposure was highest among the banks analyzed. The bank said in its fourth-quarter earnings presentation that it expected lower energy loan growth in 2020 compared to 2019. The bank reported a quarter-over-quarter increase of $2.8 million in "non-accrual loans" related to "lingering workout credits" but reported "no new issues emerging from [the] portfolio" in the Jan. 22 earnings presentation.

SNL Image

Click here to access a spreadsheet listing select U.S. banks with energy loan exposure.

Some banks with energy exposure have already been reducing their oil lending portfolios. Of banks examined by S&P Global Market Intelligence, the largest year-over-year drops in energy loans as a percentage of total loans were Oklahoma City-based Bank7 Corp. and Houston-based Cadence Bancorp. But with energy exposure still exceeding 10% of total loans for both companies, Bank7 and Cadence have seen some of the most dramatic sell-offs in the space.

Cadence, which reported "problem loans" in restaurants as well as energy, stated in its 2019 annual filing that "a downturn or lack of growth in the energy industry and energy-related business, including sustained low oil prices or the failure of oil prices to rise in the future, could adversely affect our results of operations and financial condition."

Eight energy-concentrated banks in the S&P Global Market Intelligence analysis have unfunded commitments, which include credit lines and allow borrowers to take out additional loans. These could provide a source of funding to energy borrowers to get through the price downturn.

SNL Image

Houston-based Prosperity Bancshares Inc.'s portion of energy loans to total loans was up slightly for the bank in the fourth quarter of 2019 on a year-over-year basis. President and COO Kevin Hanigan said during the bank's fourth-quarter earnings call that Prosperity had taken on a "massive effort" to reduce distressed oil loans and the bank plans to reduce its energy portfolio.

Dallas-based Texas Capital Bancshares Inc. stated in the risk factors section of its 2019 annual filing that its exposure to the energy industry could adversely affect performance. "While the Texas economy is more diversified than in the 1980s, the energy sector continues to play an important role," the company wrote. Texas Capital's energy loans make up about 5.2% of its gross loans, according to the filing.