Here come the reverberations from the drop in oil prices as UK banks tot up possible losses on loans to the industry. The oil industry has issued $650bn in high yield debt since 2011 and banks are said to be looking at more than £2bn in losses if companies default on their loans.
According to the Telegraph, oil and gas has accounted for 411 for every $100 in high yielding debt, particularly on American shale.
Even though we haven’t had any news of big defaults (yet), the fall in prices will be enough to have banks tightening up lending to the sector which could force the issue to a head quicker than would happen naturally. If oil becomes the next risk no-go area for banks then the domino effect will kick in and we’ll likely get a raft of defaults and losses.
I wonder how oil assets looked in the bank stress tests when prices we’re around $20 higher?
