Canadian Western Bank ‘watching every loan’ after energy industry defaults

Canadian Western Bank (TSE:CWB, Mkt cap 2.09B, P/E 9.97, Div/yield 0.23/3.58, EPS 2.58, Shares 81.88M) has reported a 37% decline in profit for the second quarter after struggling clients in the oil and gas industry failed to keep up their loan repayments. However, the quarterly results were better than many analysts feared.

Canadian Western Bank

Canadian Western Bank ‘watching every loan’ after energy industry defaults

Announcing its quarterly results last week, the bank blamed “the significant negative impact of persistent low oil prices on the credit performance of oil and gas production loans”.

Net income fell to C$32.2 million for the quarter ended April 30, 2016, after the bank set aside C$33 million to cover defaulted loans to oil and gas companies. Overall, its exposure to oil and gas production loans decreased C$7 million to C$327 million. That’s equivalent to 2% of its total lending, news agency Reuters reported.

Diluted earnings per common share of C$0.40 were down 38%, the bank said.

Reuters noted that Canada’s biggest banks, including Royal Bank of Canada, Toronto-Dominion Bank and Bank of Nova Scotia, all announced higher losses on loans to energy companies in the second quarter after oil prices dropped to 13-year lows in February.

Commenting on the situation, Canadian Western Bank’s CEO Chris Fowler told analysts that the bank was watching every oil and gas loan closely.

“This whole industry is challenged right now,” he said. “Not every loan financially is on the watch list but we’re looking at every loan.”

The bank’s pre-tax, pre-provision earnings rose 8% to C$84.5 million thanks to 14% year-over-year loan growth and 7% higher non-interest income. This was partially offset by a 10 basis point decrease in net interest margin and 10% increase in non-interest expenses.

Edmonton based Canadian Western Bank offers a range of financial services through more than 40 branch locations in Western Canada. The bank offers Personal banking, business banking and investing services. Personal banking include the provision of bank accounts, mortgages, loans, credit cards, banking services such as online banking, mobile banking and ATM banking, creditor insurance and travel insurance. Business banking includes provision of business lending, business accounts, cash management services, credit cards and services to small businesses. Its investing services include a range of Guaranteed Investment Certificates (GICs), Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), Registered Retirement Income Fund Products (RRIFs), Registered Education Savings Plan (RESP) and mutual funds. More from Reuters »

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