Dallas Fed Report Reveals Increase In Noncurrent Loans
The Federal Reserve Bank of Dallas released its quarterly economic report revealing an acute rise in noncurrent energy-related loans.
Consistently low oil prices have taken a toll on district bank customers, the report notes, resulting in limited cash flow and the loss of collateral value. In turn, borrowers are feeling the pressure as their loans near default, Bloomberg reports.
Most of these loans fall under the commercial and industrial lending (C&I) category, which has seen a boom since the 2008 financial crisis, and is met with somewhat less scrutiny from regulators than rising commercial real estate loans.
The Dallas Fed said C&I lending is the largest single component of past due loans at the region’s bank, bypassing nonperforming residential and commercial real estate loans for the first time since 2005.
As a result, regulators issued new guidelines earlier this year to oversee the lending from banks to oil and gas companies.
"Eliminating the value of the collateral backing the loans tightens the loan grading methodology, making it more likely that a loan will be downgraded and a bank will be forced to provision against future losses," the Dallas Fed said. [Bloomberg]