DBS had no prior specific allowance for Swiber exposure: UBS report
Singapore
A UBS report on Friday suggested that DBS did not provide for its S$700 million Swiber exposure at all and that specific provisions at the bank look low.
DBS said on Thursday it expects only half of the total exposure of about S$700 million to the Swiber group of companies - comprising loans, bonds and off-balance-sheet items - to be recovered because the exposure is only partially secured.
Swiber stunned the stock market on Thursday with the move to wind up the company,
The UBS report on Friday said: "It doesn't look like the bank had provided for the exposure at all so far . . . simply put, (it) adds one more quarter of specific provision charges."
DBS shares closed 2.96 per cent lower at S$15.41 on Friday.
Singapore's largest bank said it would tap its general allowance to provide for the anticipated shortfall, bringing the net allowance charge to S$150 million.
In Singapore, there are two forms of provisions. Under a specific provision, a portion of earnings is set aside for specific loans under stress. The second is a general provision, which is an overall cushion against loans that may, even in the ordinary course of business, come under stress.
Under Monetary Authority of Singapore (MAS) rules, Singapore banks must always maintain a general provision of at least one per cent of loans and receivables after accounting for collateral and deducting any specific provisions made.
UBS noted that of the expected Swiber-related loss of S$350 million, S$150 million is being provided through specific provisions and the remaining S$200 million by tapping existing general provisions.
This alone is likely to lower the general provision coverage by seven basis points (bps) to 0.92 per cent. Provisions are calculated as a percentage of loans.
The average quarterly credit cost over the last five quarters has been around 22 bps, or S$160 million, and the Swiber-related specific provision charge adds another 5-6 bps to this.
And had the bank chosen to provide for the loss fully using specific provisions, the incremental credit charge would have been 13-14 bps - slightly higher than the management guidance of a pickup of 5-10 bps in credit costs in FY16 versus last year.
"We have long argued that specific provisions at the banks look low. This is also true at DBS," UBS said. DBS's disclosure confirmed market rumours about its significant exposure to the oil-services firm.
UBS also said OCBC appears more proactive in its non-performing loan (NPL) classification, it is providing better disclosure, and is more prudent overall.
Meanwhile, the Securities Investors Association (Singapore) questions why the company has chosen to liquidate rather than opt for judicial management, which potentially could see some light at the end for shareholders. Its president David Gerald said: "With a liquidation process, it's almost the end...
"Of course the question on everyone's mind - why did the directors resign when they are most needed to help steer the company? It's akin to the pilots jumping off leaving the passengers." Swiber last night announced that it will be taking the judicial management route instead and reversed the announcement on the resignations.
