January 12, 2016 11:50 am

Big banks stress test their books against $25 oil prices

The decline of oil has been a crude reality for investors as prices plummeted. Shallima Maharaj reports.

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TORONTO – Recent declines in the price of crude are spurring Canadian banks to take a closer look at their loan books, with Bank of Montreal stress-testing its oil and gas sector portfolio to see how it would perform at $25 a barrel oil.

Bank of Montreal chief executive Bill Downe says the bank is also stress testing its broader loan portfolios — which includes consumer mortgages, credit cards and auto loans — for an average of $35 a barrel over the course of the year.

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For 2017 the bank is using $30 a barrel oil for its stress tests, and for 2018 it’s considering the potential effects of a $40 a barrel scenario.

Downe made his comments during the Canadian Bank CEO Conference in Toronto as crude oil futures were trading at about US$32 a barrel.

MORE: Oil prices dive below $32, touch fresh 12-year lows

Meanwhile, Royal Bank CEO Dave McKay said he expects oil to start moving back towards the $50 a barrel range — and maybe slightly above — over the next 18 months.

“It’s a little softer than anybody predicted right now,” McKay said.

So far, however, McKay says Canada’s economic woes have been contained within oil-producing provinces, particularly Alberta, while other regions are being helped by a decline in the dollar’s value.

“You’re seeing that weaker Canadian dollar drive great strength in B.C. … You’re seeing great strength in Toronto.”

MORE: Job seekers flock to B.C. and Ontario for work again

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