Smaller regional banks are feeling the pain, as well. On Thursday, San Antonio-headquartered Cullen/Frost warned investors ahead of its earnings next week that it expects its provision for covering loan losses to total $34 million for the fourth quarter, primarily due to energy-sector lending.
Meanwhile, Tulsa, Oklahoma-based BOK Financial increased its fourth-quarter loan loss provision to $22.5 million, due to an impairment on a single energy borrower’s loan that came as a result of “steeper-than-expected production declines and higher lease operating expenses.” The bank previously forecast loan loss reserves of $3.5 million to $8.5 million. It did not identify the borrower.
Analysts expect banks to continue to kick the can down the road by offering grace periods, exercising flexibility when loan covenants arise and postponing principal payments.
But Gheit said the industry is now venturing into uncharted territory, noting that many drillers took on more debt than they needed — in some cases, simply because banks offered bigger loans than they sought.
“I’ve been in the industry 30 years. I’ve never seen anything like it,” he said. “Small producers went like drunken sailors. They just bought everything in sight. The banks were the enablers.”