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UK lending giant Standard Chartered Plc announced on Wednesday that it had increased the amount of loans to oil refineries by 24 percent as of the end of June over 2015 levels.
Standard Chartered, who has already seen billions in losses from its energy sector loans, is doubling down in the energy industry to the tune of $7.3 billion in outstanding loans to the oil refinery segment alone.
The lender, who is focused largely on emerging markets and therefore commodities, said their reason for the increase in oil refinery loans was due to the “broadly steady” profit margins during the period, which likely seemed logical, because in late 2014, downstream margins were great thanks to the crash.
Unfortunately, the recent Q2 reporting season shows that the current excess of gasoline stockpiles has caused a deterioration of Q2 refining margins across many players in the industry, including majors such as BP, Exxon Mobil, and Total SA.
For BP, Q2 2016 refining margins were the weakest in six years.
In 2015, Standard Chartered posted more provisions against bad debt than HSBC Holdings, Plc—a bank four times its size—or a staggering 87% increase in bad debts. Then in February 2016, it was announced that Standard Chartered had experienced its first full-year loss since 1989—largely due to the oil price rout.
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According to Standard Chartered’s annual report for 2015, $9.6 billion of its loans were to oil and gas producers, $7 billion to oil service companies, and $5.9 billion to refineries.
According to its Half Year Report 2016, Standard Chartered said that loan impairment doubled in the first half of 2016 over the last half of 2015, “primarily in the Oil & Gas and Metals & Mining sectors. We are continuing to proactively manage our commodity exposure.”
The report further explains that “89 per cent or $7.2 billion of the net exposure to clients can sustain an oil price of $30 per barrel for 12 months or to global majors or large SOEs.”
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for US-based Divergente LLC consulting firm, and a member of the Creative Professionals Networking Group.