Banks’ Credit Risk Associated with the Oil Service Industry

Abstract

Norwegian banks’ direct credit exposures to the oil service industry are low overall. Despite a substantial fall in oil prices and oil investment, banks’ losses on loans have remained low. The debt-servicing capacity of a number of oil service companies is declining, and there are prospects of weaker earnings ahead, factors that are reflected in these companies’ low equity and bond prices. Several oil service companies may experience problems with servicing debt in the period ahead. Norwegian banks are posting solid profits, with high leverage ratios compared with banks in most other countries. In comparisons with various stress tests and historical loan losses, Norwegian banks are well-positioned to absorb large losses on loans to the oil service industry.