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“Notwithstanding the recovery in the oil price from its lows … the oil-related credit cycle has only just begun after a prolonged lag period that saw credit provisions remain near trough levels,” Rob Sedran, an analyst at CIBC World Markets Inc., wrote in a note distributed to clients Tuesday.

“This announcement confirms that all of the banks are hardly out the other side,” the analyst wrote.

However, he noted that Canadian Western Bank’s geographic exposure to provinces including Alberta renders it “proportionately more exposed.”

Canadian Western Bank’s oil and gas production portfolio was $329 million at the end of the first quarter, suggesting a 10 per cent loss rate, Sedran said. The oil and gas production portfolio represents two per cent of the bank’s total loan portfolio.

Sedran said he does not expect book value erosion or other balance sheet issues to emerge as the credit cycle plays out.

“We do, however, expect the pressure on the income statement to remain,” the analyst wrote as he downgraded Canadian Western Bank to “sector underperformer” and reined in his earnings expectations.

Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, is keeping close tabs on the banks’ exposure to the energy sector, a spokesperson told the Financial Post Tuesday.

“Given the prolonged low oil price environment, OSFI continues to pay close attention to the adequacy of risk identification,” Annik Faucher said. “We focus on banks’ ability to identify and manage their risks and believe they generally have prudent practices in place to monitor and manage these concentrations.”