ATB braces for possible defaults as earnings dip
Alberta’s struggling oil-fired economy has prompted ATB Financial to dramatically hike its loan loss provisions, resulting in a big drop in the bank’s annual profits.
Net earnings for the fiscal year ended March 31 plunged more than 70 per cent to $108.1 million, the provincially owned bank reported Friday. That’s down from a record profit of $328.7 million for fiscal 2015.
The decline mainly reflects a sharp spike in loan loss provisions — an amount set aside in preparation for possible loan defaults by customers — to $387.6 million from just $72.6 million a year ago, an increase of some 430 per cent.
“There’s no doubt a lot of individuals and businesses in Alberta are hurting right now,” said Dave Mowat, ATB’s CEO, in a release. “And that pain is now being felt more than ever in Fort McMurray as the community recovers from the devastating wildfire.”
Not surprisingly, most of ATB’s potential problem loans are with firms that rely wholly or in part on securing new business with the struggling oil and gas industry.
“We have 85,000 business customers in Alberta and they have been amazingly resilient. They have quite a bit of equity in their businesses so that portfolio has done pretty well,” Mowat said in an interview. “It’s the guys that are directly affected (by the energy downturn) that are hurting. Their revenues didn’t go down by 10 or 20 per cent. In some cases it went down by 100 per cent.”
While ATB’s year-end profits shrunk significantly, Mowat noted that the bank’s underlying business remains strong, with loans, deposits, assets and operating revenue all climbing higher for the year. ATB’s $1.5 billion operating revenue rose 5.8 per cent over the previous year, bank loans grew by 7.1 per cent and deposits increased by nearly one per cent, despite the province’s ongoing economic downturn.
Mowat emphasized that ATB’s loan loss provisions are just that: an estimate of potential bad loans, not actual loan losses. The latter totalled $75.8 million for the year, or less than 20 per cent of the amount set aside under the bank’s loan loss provisions.
“So it ($387.6 million) is a big number but we haven’t lost that money by any stretch of the imagination. We’re working with those companies to try and keep them afloat. Not all of them will but we’re trying to be conservative.”
Despite the challenges, ATB’s business and agriculture unit generated net earnings of $110.5 million for the year, up 10.8 per cent from the previous year, and the bank’s investor services unit posted net income of $31.4 million, up 37.1 per cent.