WASHINGTON (Reuters) - U.S. banks are weighed down by loans to the struggling energy industry but underwriting standards improved early this year, according to a report on Friday from leading bank regulators.
Banks are working through a downturn in the oil and gas sector and loans to already-indebted companies but fresh loans are being written to a higher standard, according to the review from the Federal Reserve, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp.
“Agencies noted improved underwriting and risk management practices related to the most recent leveraged loan originations,” according to the review of the first three months of the year.
Banks have pared back leveraged lending to a negligible volume, concluded the Shared National Credits Report, a snapshot of the biggest and most complicated loans extended by multiple banks.
In March 2013, regulators warned banks to monitor their revolving loans and other credits to indebted companies and Friday’s report indicated many banks were complying.
A decline in energy prices since 2014 could continue to hurt banks if oil and gas companies cannot make loan payments or they get pushed to default, the regulators said.
Still, regulators warned that too-loose lending that remained on bank books could weigh on the industry in a credit downturn.
“Examiners again raised concerns about borrowers’ capacity to repay certain new originations - both underwritten and refinanced loans - if economic conditions deteriorated,” the report states.
Regulators examined $4.1 trillion worth of debt to 6,676 borrowers for the first quarter, and found that 1.8 percent of it was not performing. That index, known as non-accrual, had been at 1.3 percent in the same time in 2015.
Reporting By Patrick Rucker