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Diving brief:
- BankProv’s, based in Amesbury, Mass., said its exposure to loans to the crypto mining industry could lead to a net loss of $27.5 million for the quarter ending September 30, according to a report. document he filed with the SEC on Tuesday.
- Bitcoin’s volatility, coupled with rising energy costs, has called into question the financial stability of the bank’s borrowers who hold digital asset mining loans, the bank said. The value of cryptocurrency mining rigs that serve as underlying collateral for loans has also been hit by the downturn in the crypto sector, the bank said in the filing.
- BankProv said it was still assessing the true level of losses due to the recent decline in the cryptocurrency mining industry, adding that losses could exceed its estimate of $27.5 million. In a separate deposit On Tuesday, the company said it had delayed releasing its financial statements for the latest quarter as a result.
Overview of the dive:
Crypto mining is an energy-intensive process by which bitcoin and other digital assets are brought into circulation and transactions are verified.
Rising energy prices along with the decline in bitcoin’s value have led to bankruptcies and industry consolidation.
“Space is in Distress,” Lucas Pipes, Managing Director of B. Riley Securities told Blockworks. “There is no other way to put it.
The distressed state of the crypto market, coupled with a partial write-down of cryptocurrency mining rigs that BankProv took over in exchange for the cancellation of a $27.4 million loan relationship, has prompted the company to conduct a review of its secured loan portfolio in the same way, the bank says.
Following the $27.4 million loan forgiveness, the bank’s digital asset mining loan portfolio stood at $76.5 million at the end of September, the bank said.
BankProv said it believes a majority of this loan portfolio will be written down and placed in non-recognition status with significant specific reserves attached.
BankProv started a deposit operation for crypto companies and expanded into crypto business lending several years ago in an effort to serve an underserved market, according to Financial Mark.
The $1.7 billion asset bank issued its first bitcoin-secured crypto trade credit line in late 2020 and rolled out an Ethereum-secured credit line the following year, according to the publication.
“We would like to be the main bank, but some of these businesses are multi-billion dollar businesses,” BankProv CEO Paul Mansfield told the financial brand in November last year. “However, they need a lot of support from banks and so it’s not a win-win proposition on the lending side.”