More bad loan woes ahead for S’pore banks: Moody’s

SINGAPORE – Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank’s (UOB) first-half financial results revealed a further weakening in their asset quality and profitability, Moody’s Investors Service cautioned yesterday, noting a worrying uptick in their non-performing loan (NPL) ratios resulting from exposure to the oil and gas sector.

The NPL ratios of the two lenders rose to new highs in the second quarter. OCBC reported an increase in its NPL ratio for oil and gas loans (which include offshore marine borrowers) to 7.5 per cent, from 7.1 per cent at end-March. UOB did not disclose its oil and gas NPL ratio, but has indicated that most of new NPLs recognised in this quarter relate to oil and gas borrowers.

The move by Swiber Holdings, which provides construction services for international oil and gas projects, to apply for judicial management last week, compounds matters and could lead to more asset quality challenges for the Singapore banks this year, Moody’s said in a report.

Among the three Singapore banks, only DBS has disclosed its exposure to Swiber, saying it expects to recover about half of the S$700 million it lent to the firm and its units, and expected to incur a net allowance charge of S$150 million. UOB has said that it has some manageable exposure to Swiber. OCBC is not listed among Swiber’s main bankers in its 2015 annual report.

Moody’s downgraded its outlook for Singapore’s banks on June 30 to negative from stable, citing worsening operating conditions domestically and regionally, and their high exposure to energy-related industries. The report focused on UOB and OCBC, as DBS’ results will be released on Aug 8.

Of the 19 offshore service companies (including oilfield services companies) listed in Singapore, 10 companies recorded net losses in the first quarter this year, Moody’s noted. These accounted for more than 60 per cent of the total debt assumed by the 19 offshore service companies, it said.

“The banks’ exposures to the oil and gas sector remain significant, with UOB’s and OCBC’s exposure to offshore marine services companies amounting to 13-18 per cent of their CET1 (common equity Tier 1) capital and loan loss reserves at end-June 2016,” Moody’s said. “NPLs for the offshore services sector will increase as more borrowers face cash flow strains and approach the banks for loan restructuring.”