(Bloomberg) — A group of U.S. regional banks is increasing lending to oil, gas and coal customers and grabbing market share as larger European rivals retreat.
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The list of banks includes Citizens Financial Group Inc., BOK Financial Corp., according to data compiled by Bloomberg. and Truist Securities Inc. The companies have climbed between 13 and 40 notches in the rankings of fossil fuel lenders since the end of 2021, making them among the top 35 global banks by deal count. Fifth Third Securities Inc. and US Bancorp, already in the top 30, each rose 10 notches over the same period.
Since the start of 2022, the total number of fossil fuel loans issued by Citizens Financial, BOK Financial, Truist Securities, Fifth Third and US Bancorp has increased by more than 70% on an annual average compared to the previous six years, Bloomberg data shows.
Spokespeople for Truist, Fifth Third and US Bancorp declined to comment.
Rory Sheehan, a spokesman for Citizens Financial, said the bank supports initiatives that enable the transition to a lower-carbon future. He also said the bank recognized the role of the oil and gas industry.
The development offers a glimpse into how the U.S. banking landscape is changing in light of stricter climate regulations across the Atlantic. Regional lenders in the US – rocked by the crisis that followed the collapse of Silicon Valley Bank – are engaging in more fossil fuel lending, while banks in Europe are starting to pull back for fear of environmental, social and governance issues regulations and climate lawsuits.
“Anyone who bets heavily that demand for fossil fuels will continue to rise significantly is clearly taking a view that is at odds with existing forecasts,” said Jean Boissinot, head of the secretariat of the Network for Greening the Financial System, at takes place at the Banque de France and includes officials from the world’s central banks. “I want to be very sure they understand the implications of this type of bet.”
BNP Paribas SA, the European Union’s largest bank, and ING Groep NV, the largest lender in the Netherlands, are among banks moving to expand restrictions on fossil fuel customers. The companies, both of which are currently battling lawsuits from climate nonprofits, have fallen about 10 spots in the rankings of oil, gas and coal lenders over the past two years.
Wall Street’s biggest banks, meanwhile, remain among the fossil fuel industry’s absolute largest lenders. Such loans were issued last year by Wells Fargo & Co., Bank of America Corp., according to Bloomberg data. and JPMorgan Chase & Co. dominates.
Some of the U.S. regional banks that are ramping up oil, gas and coal lending are based in states that have either passed or are reviewing anti-ESG laws. In Oklahoma, where the Energy Discrimination Elimination Act took effect at the end of 2022, local bank BOK Financial recently climbed the rankings to become one of the world’s 30 busiest fossil fuel dealmakers.
Marisol Salazar, senior vice president and manager of energy banking at BOK Financial, says the bank now sees “a lot more opportunity” in the fossil fuel industry.
“We don’t just pick up customers,” she said. “We also recruit talent, we recruit engineers, we recruit investment bankers, we recruit experienced account managers.”
For fossil fuel borrowers, the development means they will continue to have access to credit at continued competitive prices. It is a development that challenges some assumptions about divestment policy, as there is evidence that fossil fuel companies are seeking alternative sources of financing.
“For the smaller loans, the pricing could be a little more aggressive,” Salazar said. “But overall you’ll see pretty common terms.”
Based in Ohio, whose Senate has also passed anti-ESG legislation, Fifth Third was recently among three banks that replaced Barclays Plc on a $325 million loan to ProFrac Holdings, a fracking company. This is because the British bank imposes restrictions on customers with high carbon emissions as part of its climate policy.
It’s not just smaller banks that are lending more to fossil fuels. Jason Kerr, a partner in the energy practice at law firm White & Case, says he’s seeing commodities traders move in while some larger banks are pulling out.
In Africa, where Kerr’s work is focused, the scale of the shift is “dramatic,” he said.
“Major international oil traders are moving from fairly simple financing to quite complicated financing arrangements,” Kerr said. “They used to come to market with a simple upfront payment for oil, but they are increasingly resembling traditional banks.”
There is also evidence that banks are, in some cases, being replaced by private credit managers eager to get into the fossil fuel business.
Read more: Banks shy away from private fossil fuel lending deals
The value of private lending deals in the oil and gas industry topped $9 billion in the 24 months ending in 2023, up from $450 million in the previous two years, according to data from Preqin, an analytics firm pursues the alternative investment industry.
The result is that even as banks pull out of the fossil fuel industry, “replacements come and funding continues,” Kerr said.
– With assistance from Tyler Kazio.
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