Volatile and plummeting oil prices are weighing heavily on global confidence; however, direct exposure to oil & gas is fairly modest for U.S. banks, according to a review by Fitch Ratings.
U.S. banks reported increased energy-related loan provisioning in fourth quarter 2015; however, the impact to capital for larger banks is expected to be manageable in Fitch's view.
'The majority of U.S. banks are positioned well to withstand the volatile energy markets even in the riskiest segments including oilfield services, exploration and production companies, and losses to date have been minimal,' said Doriana Gamboa, Senior Director, Fitch. 'Going forward, the oil impact on banks could intensify as oil hedging protections roll off, capital markets funding diminishes and expense management options dwindle.'
If the price of oil remains lower for longer than expected, banks may struggle with additional provisioning. However, Fitch expects oil prices to increase to $45 per barrel on average in 2016 and $55 in 2017, which marks a large improvement from current prices of around $30 a barrel. Whether oil prices improve, however, remains to be seen.
'Larger U.S. banks should be able to weather loan provisions without rating pressures, but negative rating actions are possible for some midtier banks if oil prices remain depressed near or under the $30 per barrel range for an extended period,' said Julie Solar, Senior Director, Fitch.
In January, Fitch revised the Outlook for BOK Financial, a midtier regional bank, to Negative from Stable, due to the bank's larger relative oil exposure and challenging market conditions in oil-rich Texas and Oklahoma.
In Fitch's view, regulators are likely to call out oil & gas exposure in the next Shared National Credit review (SNC) beginning in February. The upcoming SNC review could drive some ratings changes for U.S. banks with greater relative oil pressure exposure.