Offshore Woes Reach Lenders' Balance Sheets

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By MarEx 2016-04-28 20:34:28

The effects of the oil price decline have swept through the offshore sector over the last two years – affecting rig operators, then services firms, shipbuilders and the local economies where they operate. The decline is also trickling down to the sector’s creditors. The financial services group DNB, Norway's biggest lender, said in a first quarter report released Wednesday that earnings were down 20 percent year on year, due in part to bad loans in the struggling offshore sector.

Citing a "negative trend in the offshore supply vessel and rig markets," DNB said that "impairment losses are estimated to total up to $740 million" this year. The bank expects to see approximately the same level next year as well. 

DNB has significant exposure to offshore oil and gas, and Bloomberg published a chart Thursday showing the bank's share price roughly tracking the price of the Brent crude benchmark over the span of the last year. 

DNB earned roughly $625 million in the first quarter, down, but better than analyst expectations.

Swedish competitor Nordea said that its profits had declined by nearly a third in the first three months of the year. Loan losses were down slightly at about $125 million, but it expected rising impairments due to its exposure to the sector later in the year. "We expect some increases in loan loss provisions in oil and offshore-related loans, due to the low oil price," Nordea said. 

Nordea also faces headwinds from exposure to a different offshore sector – offshore banking. The firm was named in documents released in the Panama Papers scandal; Nordea says that it has done nothing illegal, but it has come under heavy public criticism from elected officials for allegedly assisting with the creation of tax-efficient offshore accounting structures.

"We don't accept being used as a platform for tax evasion," CEO Casper von Koskull said Thursday, adding that the firm should not be associated with "anyone operating in the gray zone."

“It’s not only about the regulation, law and policy,” Koskull said. “We need to take a normative approach to this as well. Whatever comes out of it, the sector needs to kind of be ahead of the curve rather than behind the curve.”