Weaker oil prices don’t represent an immediate threat to the credit quality of banks, but a prolonged period of low prices would have an impact in countries that are oil exporters, says Moody’s Investors Service.

In a new report, the rating agency indicates that there are “no imminent threats” to the creditworthiness of banks globally from the recent sharp fall in oil prices. Indeed, it says that, overall, lower oil prices will support bank creditworthiness “given lower input costs and improved debt-service capacity for corporate and household borrowers”.

“Overall, we don’t expect immediate material negative effects on global banks’ fundamental creditworthiness as a result of the recent sharp fall in the price of oil. Banks have seen broad improvements in asset quality and capitalization, which should provide them with sufficient resources to absorb any oil-price-driven loan quality deterioration,” says Robard Williams, vice president and senior credit officer at Moody’s.

However, the report also cautions that direct and indirect exposures to the price decline “could lead to asset-quality and earnings deterioration in several banking systems if prices remain depressed for a prolonged period.” In particular, it says that banking systems in oil exporting countries would feel it most.

For instance, Moody’s says “credit costs associated with Canadian banks’ consumer portfolios will rise, alongside those for their loan exposures to oil-related corporates, which account for 2% to 3% of Canadian banks’ total loans.”

In the Gulf region, it says that lower oil revenues will put pressure on some governments’ ability to sustain current spending, which drives the region’s economic growth and underpins the operating environment for banks. Moody’s notes that the banking systems of Oman and Bahrain are the most vulnerable in the region, given high break-even prices, tighter fiscal positions and low reserve buffers.

In Latin America, it notes that Colombia and Mexico are net oil exporters, and that a protracted economic slowdown will negatively affect these countries’ banks.

For Europe, it says that the banking systems that are most exposed to oil prices are those in Norway and Austria.