BankProv braces for $27.5M hit on bad crypto mining loans

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Dive Brief:

• Amesbury, Massachusetts-based BankProv’s said its lending exposure to the crypto mining industry could result in a net loss of $27.5 million for the quarter ending Sept. 30, according to a document it filed with the SEC on Tuesday.
• The volatility of Bitcoin, coupled with rising energy costs, have called into question the financial stability of the bank’s borrowers who hold digital asset mining loans, the bank said. The value of the cryptocurrency mining rigs that serve as the underlying collateral for the loans have also taken a hit amid the downturn in the crypto sector, the bank said in the filing.
• BankProv said it is still evaluating the actual level of losses due to the recent decline in the cryptocurrency mining industry, adding losses could exceed its $27.5 million estimate. In a separate filing on Tuesday, the firm said it has delayed the release of its financial statements for the most recent quarter, as a result. 

Dive Insight:

Crypto mining is an energy intensive process by which bitcoin and other digital assets are entered into circulation and transactions are verified. 

Rising energy prices as well as the drop in bitcoin value have led to bankruptcies and consolidation in the sector.

“The space is distressed,” Lucas Pipes, managing director at B. Riley Securities told Blockworks. “There’s no other way of putting it.

The distressed state of the crypto market, in conjunction with a partial write down on cryptocurrency mining rigs that BankProv repossessed in exchange for the forgiveness of a $27.4 million loan relationship, triggered the firm to undergo a review of its portfolio of similarly collateralized loans, the bank said.

Following the $27.4 million loan forgiveness, the bank’s digital asset mining loan portfolio totaled $76.5 million at the end of September, the bank said.

BankProv said it estimates a majority of that loan portfolio will be impaired and placed on non-accrual status with significant related specific reserves.

BankProv launched a deposit operation for crypto companies and expanded into business loans to crypto firms several years ago in effort to serve an underserved market, according to the Financial Brand.

The $1.7 billion-asset bank issued its first bitcoin-secured crypto business credit line in late 2020, and rolled out an Ethereum-secured credit line the following year, according to the publication.

“We’d love to be the primary bank, but some of these firms are multibillion dollar companies,” BankProv CEO Paul Mansfield, told the Financial Brand in November last year. “However, they need a lot of support from banking and so it’s not a winner-take-all proposition on the loan side of things.”