Daily Management Review

Oil Loans of EU Banks Are Estimated at $ 200 Billion


02/26/2016


Preliminary assessment of loans to EU banks, oil and gas sector, is at minimum of $ 200 billion. However, this amount may be only the tip of the iceberg, experts warn.



pixabay.com
pixabay.com
Commercial banks in Europe do not use uniform standards for the disclosure of information on energy credits. They also often (understandably) prefer not to specify who exactly issued the loan: European companies producing conventional oil or American shale drillers. Most importantly, a number of credit institutions has decided not to publish any figures, even approximate. Among these "silent types" is Deutsche Bank, the largest in Europe.

It turns out that European banks lend oil industry even more (by $ 77 billion) than their American counterparts. Approximate estimate of total loans to banks in the US energy sector is $ 123 billion. It is worth noting that the numbers may be underestimated in this case, as many banks, as well as in Europe, prefer to remain silent.

The situation is exacerbated by the fact that HSBC, Standard Chartered and a number of banks actively invested not only in the mining companies, but also in other sectors of the Petroleum Exporting Countries. Now the attention shifts to other raw materials, in which the situation is no better. Noble Group reported in the annual loss for the first time in 20 years. Anglo American’s rating was downgraded to "junk".

Only HSBC investments in the metals and mining sector is estimated at $ 18 billion. So far, the bank has reserved total $ 100 million for losses on these investments. European banks face a triple blow, namely depreciation of their investments in oil and metals, and in commodity economies themselves.  

Their overseas counterparts have higher probability of catastrophe: due to purely geographical factors, share of investments of US banks in the shale industry is higher than in Europe. The head of JP Morgan James Dimon said that the provision for loan losses for oil will have to increase to $ 1.5 billion, if WTI quotes hold at around $ 25 per barrel for 18 months. Some experts believe the assessment of Mr. Dimon is too modest, given that the total JP Morgan’s loans to energy sector account for approximately $ 40 billion.

Experts point out that the situation is beginning to suspiciously resemble the 2007-2008. Then the banks (both in Europe and within the United States) considered that the cost of housing in the United States is a kind of unshakable constant. A house cost about $ 300 thousand should on average - this conviction was a base for all investments and loans. When prices fell to $ 150-100 thous., a wave of shock swept through the entire system. Shortly before, the banks argued that the problem was highly specialized, it concerned only the housing market, and must have been limited. Today is all the same: oil fell by 70%, but the bankers continue to insist that there will not be a big problem with loans and investments made in the oil peak.

source: reuters.com






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