BankProv Prepares To Hit $27.5M On Bad Crypto Mining Loans

Diving brief:

• BankProv, based in Amesbury, Mass., said its exposure to lending to the crypto mining industry could result in a net loss of $27.5 million for the quarter ending September 30, according to a report. document he filed Tuesday with the Securities and Exchange Commission (SEC).
• 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. The bank, in a separate deposit Tuesday said it delayed releasing its financial statements for the last 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 the value of Bitcoin, 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.

This distress, coupled with a partial write-down of the cryptocurrency mining rigs that BankProv took over in exchange for canceling a $27.4 million loan relationship, prompted the firm to proceed with a review of its secured loan portfolio in the same way, the bank said.

Following the loan cancellation, the bank’s portfolio of digital asset mining loans 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, the publication reported.

“We would like to be the leading bank, but some of these businesses are multi-billion dollar businesses,” BankProv CEO Paul Mansfield told the financial brand in November 2021. “However, they need a lot of support from the banks and therefore it is not a win-win proposition on the lending side.