Energy Lending on the Decline

May 7th, 2015

In April, the Federal Reserve published its Senior Loan Officer Opinion Survey on Bank Lending Practices, which discusses various areas of consumer and corporate lending. The central bank’s survey found that the drop off in oil prices over the past year, has hit energy firms hard and negatively impacted industry forecasts.

The survey found that more than half of senior loan officers surveyed expected oil and gas loans to “deteriorate” in the next year.  In anticipation of more losses, defaults and charge-offs, banks are restricting credit to energy firms and/or adding credit overlays, such as increased collateral.   Although oil prices have increased in recent weeks, they still remain quite low relative to recent norms, which will continue to apply pressure to the industry.

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