Canada's Scotiabank warns oil firms' credit to be cut

Tue Apr 12, 2016 3:03pm EDT
 
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By Matt Scuffham

CALGARY (Reuters) - Bank of Nova Scotia (BNS.TO: Quote), Canada's third largest bank by market value, said that credit lines to oil firms will be tightened to reflect lower oil prices, a move which could make it tougher for some to survive.

Energy companies across Canada and the United States are meeting with their banks to review existing loans and determine how much debt they can continue to hold as part of a bi-annual process.

Scotiabank has the highest exposure to the oil and gas sector of any major Canadian bank, equivalent to 3.6 percent of its total loan book, and said in March that it had increased provisions for bad loans to oil and gas firms.

"There will be a cut in borrowing bases," Chief Executive Brian Porter told reporters after the bank's annual meeting on Tuesday.Rival Royal Bank of Canada (RY.TO: Quote) said last week that it had so far imposed a 15-20 percent reduction in borrowing bases having completed redeterminations for about half of its clients' redeterminations.

Asked by Reuters if Scotiabank's energy clients would face similar cuts, Porter said: "We're going through that with our clients now. I don't think there's any surprise to them but the number you throw out is somewhere in the ballpark we think it would end up."

Porter said he expects to see more consolidation in the oil sector. "You will see increased energy M&A and I think you’re going to see increased issuance throughout the sector," he told reporters, referring to companies looking to raise funds through issuing equity or debt.

Porter also said that Scotiabank had the financial muscle to make acquisitions to supplement organic growth if opportunities arise that fit its strategic objectives.

Scotiabank, which already has the biggest international footprint among Canada's major banks, has indicated it would like to expand its presence in Latin America.   Continued...

 
Snow covers the Scotiabank logo at the Bank of Nova Scotia headquarters in Toronto December 16, 2013.  REUTERS/Chris Helgren