Souring Commodity Loans at Highest Since '09 Amid Materials Rout

  • Commodities lending at record-high level of $904.5 billion
  • Energy loans rated substandard or worse more than quadrupled

Souring commodities loans are at the highest level since the financial crisis as the raw materials rout makes it harder for companies to repay what they owe.

Loans deemed substandard, doubtful or a loss rose to $72.1 billion in 2015, a 66 percent increase, according to a Nov. 5 report from regulators led by the Federal Reserve. It’s the highest level since 2009. The review, conducted by the Fed, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency, is designed to assess the risk of $3.9 trillion in loans shared by multiple financial institutions.

Financial institutions loaned $904.5 billion to commodities companies this year, the highest in data going back to 2004, even as prices for steel, copper and crude tumbled, the report showed. The Bloomberg Commodity Index of 22 raw materials index declined 26 percent in the past year.

Souring energy loans more than quadrupled to $34.2 billion since 2014 as oil prices tumbled. Loans deemed substandard, doubtful or a loss account for 12 percent of the banking industry’s $276.5 billion oil and gas portfolio, according to the report.

"Companies incurred significant debt to fund drilling programs, and their capital structures became unsustainable in the face of lower oil prices," the regulators wrote in the report.

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