Royal Bank's McKay Sees More Losses From Soured Energy Loans

Category: Business Loans Published: Wednesday, 27 January 2016 Written by Super User

Bank of Montrealwill stress test its loan portfolio this year based on oil at $35 a barrel -- the same average price as it used in 2015, Downe said. Losses could rise 40 basis points in that scenario, though such an increase won't have a big impact on total costs for the bank, given the size of its oil-and-gas loan portfolio, he said. A basis point is 0.01 percentage point.

Stress Test

Downe, 63, said his bank is testing its loan book using a $30-a-barrel average for 2017, and doesn't expect that stress-test price to return to $40 until 2018.

Toronto-Dominion Bank CEO Bharat Masrani said at the conference that he expects provisions for credit losses to "creep up 5 percent to 10 percent this year, largely because of the oil slump. Because Canada is an energy exporter, lower oil prices affect the growth of the broader economy, Masrani said.

"Our view is actually the growth in Canada would be muted, we're looking at less than 2 percent, Masrani said. Until the benefits of a weaker loonie kick in, Canada is "looking at an economy that is not going to have as much a robust growth level as what we might have expected if oil was much higher.

'Different Game'

Bank of Nova Scotia CEO Brian Porter said "it's a bit of a different game today than a year ago, when at the same conference he predicted there would be "a few fender benders, but there wasn't going to be a 20-car pile-up from the oil slump. Scotiabank, Canada's third-largest lender, has C$16 billion of energy loans, he said.

In a distressed environment, which would include about 11 percent unemployment in Alberta andoil prices at the same level through the end of 2017, Scotiabank could expect an additional C$450 million to C$550 million in loan-loss provisions, Porter said.

That's very manageable, Porter, 57, said. "Keep in mind that's going to happen over a number of different quarters, it's not going to happen all at once. I think, candidly, the market's anticipating a much bigger number.

Canadian Imperial Bank of Commerce CEO Victor Dodig, 50, reiterated the lender's estimate of C$650 million in pretax losses if oil remains at $30 for three years. About 75 percent of the additional loses would be from business loans, he said at the conference.

National Bank of Canada CEO Louis Vachon said he estimates losses of 20 to 30 basis points on its total loan portfolio in the first and second quarters, though if oil prices stay where they are today losses may gravitate toward 30 basis points. The Montreal-based bank's worst-case scenario is no higher than 40 basis points total for loan losses, Vachon, 53, said.

National Bank of Canada CEO Louis Vachon, 53, estimates loan losses of 20 to 30 basis points in the first and second quarters. The Montreal-based bank's worse-case scenario is for total losses of no more than 40 basis points.

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