WASHINGTON Banks expect oil and gas drilling loans to underperform in 2015, but say they are a relatively small proportion of their overall commercial and industrial loan portfolios, according to a survey of loan officers released Monday by the Federal Reserve Board.
Most respondents said they expect existing oil and gas drilling loans to either remain stable or decline in quality over the course of the year. However, all loan officers who reported having such loans said they made up less than 20% of their C&I portfolio, and half said they made up less than 10%.
Banks also said they are employing a variety of measures to limit their possible exposure to those oil and gas drilling loans. Those methods include tightening underwriting policies or requiring more collateral on new loans, enforcing material adverse change clauses to limit draws on existing lines of credit, reducing existing credit lines and restructuring outstanding loans, the survey said.
The results are consistent with Fed Chair Janet Yellen's longstanding assertion that the downturn in crude oil prices since last fall has had a negative economic impact on the oil and gas sector, but that those effects are mostly isolated and manageable. The Federal Open Market Committee last week opted to keep interest rates low in part because of the "transitory" effects of lower oil prices, weak inflation and the stronger dollar.
The report indicated that general loan demand remained largely unchanged since the last senior loan officer lending survey results were published in February. Almost all loan officers said that overall C&I credit standards and demand were unchanged from February, and the same trend was also true for commercial real estate loans. Banks reported that lending standards for residential mortgage loans had eased moderately since the previous report was published, however, and that demand for home, auto and consumer loans had increased since the previous reporting period.