US regional banks with large energy exposures, including Comerica Inc. and Zions Bancorp, could suffer higher losses than analysts predict if oil prices continue to fall, according to a Standard & Poor’s Ratings Services report.
Only two of the 10 regional banks stress-tested by the ratings firm remained profitable before paying out dividends under the most adverse scenario, which assumes energy commitments rise 25% from current levels, according to the report, Bloomberg reported.
The uncertainty surrounding the energy industry could mean banks’ losses are significantly greater than even the most adverse scenario predicts, Stuart Plesser and Devi Aurora, the primary credit analysts for the report said.
“Our outlooks for most of these banks remain negative, and given the unpredictability of energy prices, losses may be higher than we expect, even affecting loans outside of direct energy lending,” Plesser and Aurora said in the report. “US regional banks are still in the early stages of losses.”
Oil prices have dropped more than 60% from their 2014 peak, ending the debt-fueled spree that pushed US oil production to a 40-year high. Banks have set aside billions to cover bad energy loans and have said they will add to reserves if prices stay low.
Earlier this year, S&P lowered its ratings on US regional banks with “substantial” energy exposures, including Cullen/Frost Bankers Inc., and changed its outlook to negative for BBVA Compass Bancshares.
Other banks in the analysis include Texas Capital Bancshares Inc., Cullen/Frost, BOK Financial Corp., Hancock Holding Co., MUFG Americas Holding Corp. and BBVA Compass.
Regions Financial Corp. and Associated Banc-Corp were the only lenders to remain profitable under the most adverse scenario. All of the banks had more than 5% of their total loans to energy firms.
