Oil shock seen hitting Canadian bank profits in 2016

Mon Jan 18, 2016 12:24pm EST
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

* Bank executives say direct exposure to energy patch is minimal

* Canadian financial shares down 8.3 percent year-to-date

* Portfolio manager sees 10 pct downside in bank shares

By Euan Rocha and John Tilak

TORONTO, Jan 18 (Reuters) - The knock-on effect of sinking oil prices is expected to take a bigger bite out of Canadian bank profits in 2016, as more corporate loans sour, oil and gas capital raising dries up and job losses take a toll on banks' consumer arms.

Canada's big six lenders reported profit growth of 6 percent on average last year, even as falling oil triggered a shallow recession. International operations and aggressive cost cuts underpinned results.

Bank executives have emphasized that their direct exposure to loan losses in the energy patch is minimal.

But analysts and investors see a high risk the oil price rout will have a broader ripple effect on the banks' other businesses, as struggling customers in Western and Atlantic Canada default on more mortgages, auto loans and credit card debt.

"They're all making pretty bold statements about how their portfolios are positioned. They could be wrong," said Edward Jones analyst James Shanahan.   Continued...