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2015-02-23 20:15:00

OIL PRICES FOR BANKS

OIL PRICES FOR BANKS

A protracted period of low oil prices will negatively impact Canada's major banks more than it will their regional neighbours to the south, says Moody's Investor Services.

"For Canada's major banks, the credit costs on energy-sector loans would rise if oil prices were to remain low for too long, which would hurt the banks' profitability," said David Beattie, a Moody's senior vice-president, in a release.

"Given the historical relationship between oil prices and the impairment rate for energy-related loans, we expect some mild erosion in these loans' asset quality in the coming quarters."

Moody's said revenues from underwriting and capital markets activities could also decline because of potential spending cuts by the major Canadian banks' oil and gas clients.

But the scale and diversity of the Big Six should help partially offset any rise in impaired energy loans and declines in capital markets revenues, the ratings agency said, adding that the credit risk associated with energy-sector loans by U.S. regional banks is more manageable.

"Declining energy costs could actually be positive for the US banks' operating environment, with a neutral to positive effect on their overall asset quality," said Allen Tischler, a Moody's senior vice-president in the same release.

"In many cases, the US banks with the highest exposures are also the most experienced in underwriting energy-sector loans."

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Tags: OIL, PRICES, CANADA, U.S., BANKS