Energy lending will rebound in second half: BOK

Demand for energy loans, stifled for more than a year by the pandemic recession, is expected to start bouncing back in the second half of the year, BOK Financial in Tulsa, Okla., said Wednesday.

Its book of energy loans shrank 22% year over year to $3.2 billion in the first quarter and will likely contract more this spring, according to officials of the $47.4 billion-asset company. Though oil prices have been climbing, oil and gas companies are using the influx of cash to pay down existing debt and reinvest in operations — so they don’t need new loans just yet.

“The inflection point I believe is in the second quarter,” BOK Chief Operating Officer Stacy Kymes said during a call with analysts. “Whether that’s April, May or June I don’t know. But I do think we’ll reach the inflection point where we do kind of bottom out, and that’s the level we begin to grow back from.”

Prices on West Texas Intermediate crude reached $61 per barrel in April, a long trek up from one year ago when demand for energy tanked while travelers stayed home to avoid spreading the coronavirus. Prices even went negative briefly in May 2020 as investors ran out of room to store crude because supplies had been so high.

Other energy lenders have seen declines, too. The $86.2 billion-asset Comerica Bank in Dallas reported a 35% year-over-year decline in total energy loans to about $1.3 billion in the first quarter. But unlike BOK, executives at Comerica don’t expect a sharp rebound yet.

“Energy loans are expected to remain on the current declining trend as higher oil prices are driving improved cash flow and capital markets activity,” Comerica Chief Financial Officer Jim Herzog said on an April 20 call with analysts.

Large banks have been under pressure to pull back from financing the oil and gas industry, and several have made moves to curtail climate risks in their portfolios. Kymes at BOK said even smaller competitors have walked away from the business, but he said some could return if the surge in prices continue.

“As we look forward over the next two, four, five years, we really like the profile of this business and the opportunity to grow it,” Kymes said.

BOK reported net income of $146.1 million in the first quarter, more than double the $62.1 million one year earlier.

One reason was its release of $25 million of reserves thanks to fewer nonaccrual energy loans, which totaled $101.8 million in the first quarter, down 37% from the peak of $162.9 million in June 2020.