BNP Paribas Exits US Energy Loan Market on Oil Price Rout
France's largest bank BNP Paribas (BNPP.PA> is pulling out of a niche U.S. energy lending business for the second time in four years after plunging oil prices dragged what was once seen as some of the safest energy loans into losses.
"Given the current environment in the oil and gas markets and the short to medium term outlook, BNP Paribas has decided to halt the redevelopment of its reserve-based lending business," BNP said in a statement.
BNP shut its reserve-based lending business in New York two weeks ago after 13-year-low oil prices stoked concerns of rising loan defaults among borrowers, according to two sources.
BNP declined to comment on the size of the business.
The exit, a stark reminder of rising financial stress among energy companies, came as oil prices have tumbled three-quarters in the past 20 months, squeezing oil and gas producers and impeding their ability to repay loans.
The last time BNP retreated from the reserve-based lending sector was in February 2012, when it sold its business to Wells Fargo (WFCNO) in a move it said would strengthen its balance sheet.
But a boom in energy markets as oil prices hovered around a $100 proved too attractive, and BNP waded back into the business in June 2014 to plug what it said was a "gap" in its business.
Backed by borrower's proven energy reserves that are usually worth at least 80 percent of the loan, reserve-based loans were seen as virtually risk-free in the past. As such, they were often the cheapest source of financing for energy companies.
(Reporting by Mike Stone and Koh Gui Qing in NEW YORK and Maya Nikolaeva in PARIS)
