Quebec-based National Bank expects low oil prices will raise loan losses in 2016

MONTREAL – National Bank said Tuesday it expects its loan losses will increase slightly this year as low crude prices put increased pressure on borrowers in oil-producing provinces.

“Absent an improvement in prices, we expect some producer loans on our watch list will migrate to impaired and additional provisions could be incurred,” Bill Bonnell, executive vice-president of risk management, said during a conference call.

During its first quarter, the Montreal-based bank — the smallest of Canada’s six major banks — recorded $63 million in provisions for credit losses as two loans on its watch list became impaired. That’s up from $61 million in the prior quarter and $54 million a year earlier.

CEO Louis Vachon said that although low crude prices have resulted in a severe economic downturn in oil-reliant regions of the country, the bank’s exposure to consumer and small business loans in those areas “remains low and manageable.”

Alberta, Saskatchewan and Newfoundland and Labrador account for 9.6 per cent of the bank’s overall loans, compared to 82.6 per cent in Ontario and Quebec. Stable economic conditions and employment in Central Canada are also offsetting challenges associated with the energy sector.

National Bank (TSX:NA) said its first-quarter profit dropped 37 per cent, due in large part to a Feb. 7 decision to write off $145 million after taxes — its 24.9 per cent investment in Maple Financial Group after a German financial regulator shut down its Maple Bank subsidiary.

The bank doesn’t believe it will be the subject of any litigation relating to Maple, but has advised German authorities that it will repay portions of dividends received from Maple Financial if they are “reasonably attributable” to tax fraud by Maple Bank.

Net income at National Bank for the quarter ended Jan. 31 fell to $261 million from $415 million a year earlier.

Excluding several specified items, including an $18 million impairment related to its stake in TMX Group, National Bank says it would have earned $427 million or $1.17 per share in the quarter — up four per cent from $410 million or $1.14 per share a year ago.