Canadian banks’ exposure to oil-and-gas loans has surged to a record as energy firms tapped credit lines to combat plunging oil prices.
Energy loans at the country’s six largest lenders jumped 23 per cent to $71.6 billion (US$52.9 billion) in their fiscal second quarter from the prior period, disclosures show. Toronto-Dominion Bank had the largest increase at 29 per cent, while Bank of Nova Scotia remained the biggest lender with $21.6 billion in loans.
The banks’ rising exposure comes as impaired energy loans almost doubled, topping $2 billion. Energy firms have been hard hit this year as global oil prices plummeted, with some grades even briefly turning negative in April as measures to combat the spread of the coronavirus hammered worldwide demand.
“We’re clearly seeing the impact of price wars and supply-demand considerations, storage considerations beginning to play havoc on some producers,” Toronto-Dominion Chief Financial Officer Riaz Ahmed said in a May 28 interview. “In the last few weeks we’re watching prices recover with some degree of hope that things will continue to get better here.”
Royal Bank of Canada
$9.4 billion
1.30%
Toronto-Dominion Bank
$12.2 billion
1.60%
Bank of Nova Scotia
$21.6 billion
3.30%
Bank of Montreal
$15.0 billion
3.00%
Canadian Imperial Bank of Commerce
$10.5 billion
2.50%
National Bank of Canada
$2.9 billion
1.80%
With the price plunge making much of their output unprofitable, Canadian oil and gas producers have taken steps to conserve cash. They’ve reduced production, cut operating costs, slashed at least $8.5 billion in planned capital spending and tapped credit lines to help them weather the downturn.
Those drawdowns were the main reason for the 22 per cent increase in energy lending at Royal Bank of Canada, according to CFO Rod Bolger.
“The growth was driven by higher draws on existing facilities and we did make select new lending facilities to existing investment-grade clients where the risk-return was appropriate given the low oil prices,” Bolger said in a May 27 interview.
Signs of Stress
Most of Royal Bank’s exposure is to exploration and production companies and loans are secured by the value of proven and producing reserves, Bolger said. Still, the Toronto-based lender had the highest gross impaired loans among the Canadian banks, at $664 million.
Bank of Montreal posted the second-highest total for impaired energy loans, at $616 million.
“In our oil and gas portfolio we do have some signs of stress just given the weaker price of oil that we’ve seen over the last few months — it’s not totally new and we’re managing through it,” CFO Tom Flynn said in an interview. “We’ve done this before as a bank and we’re confident in our ability to manage through this stress that the industry is in.”
Canadian Imperial Bank of Commerce CFO Hratch Panossian said he is seeing more downgrades and impairments in the oil-and-gas sector, reflecting price weakness, but called the bank’s energy portfolio “relatively stable”.
“Only about half of it is in the exploration and production space and our clients do have some hedging as well that protects them in the short term,” Panossian said in a May 28 interview. “We remain comfortable with the space. Our clients are strong and managing through this and we’re committed to continuing to support them.”
Scotiabank’s Chief Risk Officer Daniel Moore said on a May 26 earnings call that exploration and production and oilfield services — which are most sensitive to weakness in oil prices — account for 1.7 per cent of total loans. More than 40 per cent of those energy loans are investment grade and the majority of non-investment grade exposure is to secure reserve-based loans or sovereign-controlled entities, he said.
While bank figures show increased borrowing, many producers are seeing the total amount of credit available reduced. That’s particularly true of producers’ reserve-based credit lines, which are tied to the value of their oil-and-gas reserves and are adjusted regularly to account for current prices.
This year’s first adjustment period, known as redetermination, is going on now, and early results show banks have been shrinking those credit lines in response to falling prices.
At least five Canadian oil-and-gas producers have announced results of their redeterminations, and all have had their credit lines cut. Notably, oil-sands producer Athabasca Oil Corp. had its credit facility reduced by 65 per cent to $42 million, while natural gas driller NuVista Energy Ltd. saw its line cut by 14 per cent to $475 million.
At least seven producers have extended the date on their redetermination processes to June 30 because of volatile prices. Five of those have had their available credit reduced on an interim basis before the final evaluation is competed.
“The best-case scenario for our junior E&P companies this year is likely a small reduction in credit capacity, a slightly higher cost to borrow, and the ability to continue to act autonomously from the influence of its banks,” Stifel FirstEnergy analyst Cody Kwong said in a note.
CALGARY – TC Energy Corp. has lowered the estimated cost of its Southeast Gateway pipeline project in Mexico.
It says it now expects the project to cost between US$3.9 billion and US$4.1 billion compared with its original estimate of US$4.5 billion.
The change came as the company reported a third-quarter profit attributable to common shareholders of C$1.46 billion or $1.40 per share compared with a loss of C$197 million or 19 cents per share in the same quarter last year.
Revenue for the quarter ended Sept. 30 totalled C$4.08 billion, up from C$3.94 billion in the third quarter of 2023.
TC Energy says its comparable earnings for its latest quarter amounted to C$1.03 per share compared with C$1.00 per share a year earlier.
The average analyst estimate had been for a profit of 95 cents per share, according to LSEG Data & Analytics.
This report by The Canadian Press was first published Nov. 7, 2024.
BCE Inc. reported a loss in its latest quarter as it recorded $2.11 billion in asset impairment charges, mainly related to Bell Media’s TV and radio properties.
The company says its net loss attributable to common shareholders amounted to $1.24 billion or $1.36 per share for the quarter ended Sept. 30 compared with a profit of $640 million or 70 cents per share a year earlier.
On an adjusted basis, BCE says it earned 75 cents per share in its latest quarter compared with an adjusted profit of 81 cents per share in the same quarter last year.
“Bell’s results for the third quarter demonstrate that we are disciplined in our pursuit of profitable growth in an intensely competitive environment,” BCE chief executive Mirko Bibic said in a statement.
“Our focus this quarter, and throughout 2024, has been to attract higher-margin subscribers and reduce costs to help offset short-term revenue impacts from sustained competitive pricing pressures, slow economic growth and a media advertising market that is in transition.”
Operating revenue for the quarter totalled $5.97 billion, down from $6.08 billion in its third quarter of 2023.
BCE also said it now expects its revenue for 2024 to fall about 1.5 per cent compared with earlier guidance for an increase of zero to four per cent.
The company says the change comes as it faces lower-than-anticipated wireless product revenue and sustained pressure on wireless prices.
BCE added 33,111 net postpaid mobile phone subscribers, down 76.8 per cent from the same period last year, which was the company’s second-best performance on the metric since 2010.
It says the drop was driven by higher customer churn — a measure of subscribers who cancelled their service — amid greater competitive activity and promotional offer intensity. BCE’s monthly churn rate for the category was 1.28 per cent, up from 1.1 per cent during its previous third quarter.
The company also saw 11.6 per cent fewer gross subscriber activations “due to more targeted promotional offers and mobile device discounting compared to last year.”
Bell’s wireless mobile phone average revenue per user was $58.26, down 3.4 per cent from $60.28 in the third quarter of the prior year.
This report by The Canadian Press was first published Nov. 7, 2024.
TORONTO – Canada Goose Holdings Inc. trimmed its financial guidance as it reported its second-quarter revenue fell compared with a year ago.
The luxury clothing company says revenue for the quarter ended Sept. 29 totalled $267.8 million, down from $281.1 million in the same quarter last year.
Net income attributable to shareholders amounted to $5.4 million or six cents per diluted share, up from $3.9 million or four cents per diluted share a year earlier.
On an adjusted basis, Canada Goose says it earned five cents per diluted share in its latest quarter compared with an adjusted profit of 16 cents per diluted share a year earlier.
In its outlook, Canada Goose says it now expects total revenue for its full financial year to show a low-single-digit percentage decrease to low-single-digit percentage increase compared with earlier guidance for a low-single-digit increase.
It also says it now expects its adjusted net income per diluted share to show a mid-single-digit percentage increase compared with earlier guidance for a percentage increase in the mid-teens.
This report by The Canadian Press was first published Nov. 7, 2024.
