Newspaper article THE JOURNAL RECORD

Prudent Positions: Banks Take More Loan Loss Provisions as Protection against Energy Sector

Newspaper article THE JOURNAL RECORD

Prudent Positions: Banks Take More Loan Loss Provisions as Protection against Energy Sector

Article excerpt

OKLAHOMA CITY - References to loan loss provisions in earnings reports are likely to increase through the year as banks upgrade their insulation against damage from low oil prices, industry representatives said.

Not all provisions will be reactions to direct threats in a bank's energy portfolio, however.

"Just because they set provisions up doesn't necessarily mean they're going to lose that money. It might just be a step of prudence," said Joey Root, CEO at First Liberty Bank in Oklahoma City. "When you set up a specific reserve, it usually means that you do expect to lose something on that specific account."

"Or you could just be setting up general reserves for the downturn in the industry, not knowing that you may have a specific loan that may turn out to be a problem," he said. "To some extent, it may just be a general reaction out of caution."

William Rogers, CEO of Atlanta-based SunTrust Banks Inc., said in April that low energy prices had led to an increase in nonperforming loans that required additional provisions for coverage. SunTrust is just one of several large U.S. financial institutions heavily invested in the sector that have made such declarations, a group that includes Fifth Third Bancorp in Cincinnati and Comerica Inc. in Dallas. The latter reported a hefty 55-percent drop in quarterly profits as of the end of March as it increased loan provisions to $148 million, a difference of about 900 percent over the same quarter a year earlier.

In April, Oklahoma bank companies BOK Financial Corp. and Southwest Bancorp likewise reported lower first-quarter results due in part to provisions needed in response to oil and gas prices.

This month, the impact has been felt across the country's border to the north. National Bank of Canada, the nation's sixth-largest, announced it would need to adjust provisions by $155 million for oil- sector loans. …

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