DBS Group Holdings, Singapore's biggest lender, said it expects to recover about half of its S$700 million ($519 million) exposure to the collapse of a big Singapore oilfield services firm, as the city-state's two other top banks flagged mounting concerns about loans to the oil and gas sector.
Oversea-Chinese Banking Corp and United Overseas Bank, Singapore's second- and third-largest lenders by assets, along with DBS, have long maintained prudent lending standards and capital levels that make them among the safest banks in the world.
But the 60 percent slump in oil prices over the past two years is beginning to impact them, as the lenders' main activity is centred on Southeast Asia, where oil and gas is a key industry. Banks are being hit by both poor demand for loans from the sector and by more loans turning sour, and both OCBC and UOB issued a dour outlook for oil and gas when they reported earnings on August 5.
Swiber Holdings became the biggest Singapore business so far to fall victim to oil's slump, after it said on Thursday it had filed for liquidation.
In a statement after the filing, DBS said it has exposure to Swiber through loans, bonds and off-balance sheet items.
DBS said it planned to tap into reserves to offset the half of its exposure that it doesn't expect to recover, and anticipates booking a shortfall charge of about S$150 million.
Analysts said DBS' exposure has raised risks about sharper-than-expected asset quality deterioration for banks.
Goldman Sachs said in a note the additional S$150 million of provisions to be taken in the second quarter ending June will impact its 2016 earnings by a negative 3 percent due to higher credit cost. The investment bank cut its price target on DBS to S$17.60 from S$17.70.
Shares in DBS, which will report results for the quarter ended June on Aug. 8, fell for a second straight day on Friday and at 0238 GMT were down 2.5 percent at S$15.47.
UNDER PRESSURE
Speaking during a briefing after reporting quarterly earnings, OCBC Chief Executive Office Samuel Tsien warned the oil and gas services sector continues to be under pressure.
"The loan demand is very weak," he said, after OCBC posted a 15 percent drop in quarterly profit, hit by lower insurance income. "Our distressed indicators for this portfolio continue to deepen, but have not broadened."
Over the next year-and-a-half, bonds totalling nearly S$1.2 billion from energy and offshore marine issuers in Singapore will mature, with S$615 million due just over the next five months, according to IFR, a Thomson Reuters publication.
OCBC's total oil and gas exposure was S$12.6 billion, nearly half of which to the offshore oil services segment.
Meanwhile UOB expects that over the next one to two years the key concern for the bank will be companies in the oil and gas sector, its CEO Wee Ee Cheong told a briefing. UOB surprised analysts with a 5.1 percent jump in earnings on higher trading income.
While their earnings trends differed, net interest income was weak at both banks, which also saw bad-debt provisions climb.
OCBC said its customer loans contracted 2 percent from a year ago due to lower trade loans and reduced offshore borrowings of Chinese companies due to more favourable onshore borrowing rates in China.
