NEW YORK, Sept 11 US regulators are
scrutinizing the effect of falling energy prices on bank loans
in a move that might make it more hardharder for loan providers to
extend additional credit to distressed oil and gas companies, sources
acquainted with the evaluation said.A halving of the rate of oil considering that the summertime has cut the
value of assets utilized by energy companies as security for their
bank loans, raising the possibility these loans will certainly be
categorized as bothered in a yearly regulative evaluation set to be
released in the autumn.Officials from the
Office of the Comptroller of the Currency
(OCC), which supervises national banks, satisfied with loan providers last
week to discuss the effect of falling product rates on
impressive loans as part of the review, sources said.If the OCC decides certain loans require to be marked as
troubled, banks will have to set aside more capital to cover the
higher risk of default, making it less profitable for them to
lend more to indebted energy firms.Turning off the
credit tap to such firms might push a few of them into bankruptcy.This is going to put an unanticipated regulatory pressure on a. standard source of capital, a source at one lender informed. Reuters.
He decreased to be named due to the fact that the evaluation is.
The OCC analyzes bank profiles for compliance with.
guidelines on leveraged loans that restrict how much debt a business.
can take on.JP Morgan and Wells Fargo were among the.
banks that fulfilled the OCC recently, one source said.JP Morgan and Wells Fargo declined to comment.
Weve heard from our loan provider clients that they are getting.
relatively consistent grilling from the regulatory authorities, particularly.
the OCC, on these questions, a legal representative who encourages banks said.The legal representative said if banks attemptattempt to refinance or reorganize. existing loans to alleviate the concern on an indebted energy company. then the regulatory authority might demand they reserve more capital,. making it less lucrative for them.The difficult choice that the loan providers deal with is to compel the.
borrower into bankruptcy or do something medium term, which.
unfortunately puts them in regulatory cross-hairs
. A spokesperson for the OCC declined to comment about the
review. however stated individual credit decisions were matters for the banks.The OCC does not make individual credit decisions for.
national banks and federal cost savings associations, he said.Early identification of struggling loans and mitigation of. associated threat is essential to the safe and sound operation. of nationwide banks and federal savings associations. The OCC. encourages banks and second hands to deal with clients to fulfill. their credit needs.Generous banks and capital markets have actually assisted sustain a United States. oil boom, permitting companies eager for development to invest so. greatly on brand-new wells that they routinely outspend their cash. flows.But with the drop in the price of oil, liquidity is waning. Banks are currently renegotiating their line of credit to gas and. oil companies, a procedure that takes placehappens two times a year, as well as. without the regulatory examination, the current slide in oil costs. was expected to see loan lines cut.While every credit
will certainly be separately examined,. normally we will likely see decreases to borrowing bases provided. existing commodity rates and the applications of banks typical. oil and gas loaning criteria
, said Paris Theofanidis, an energy. partner at law firmlaw practice Paul Hastings.(Modifying by Tessa Walsh, Carmel Crimmins and Andrew hay)