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Expect more bad debts as economy slows: DBS

But CEO says there's no systemic weakness despite bank's higher specific allowances in Q4
Wednesday, February 11, 2015 - 05:50
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Mr Gupta said DBS's portfolio as a whole continues to be relatively solid and strong, with no signs of general stress and delinquencies.

Singapore

AS Singapore's economy slows, more bad debts should show up, said DBS Group Holdings CEO Piyush Gupta on Tuesday.

But the overall loan book of DBS, the biggest bank in Southeast Asia, should be okay, he said at a press conference on the bank's fourth-quarter results.

DBS's non-performing loan ratio at end- 2014 fell to 0.9 per cent from 1.1 per cent at end-2013. Total customer loans in 2014 grew 11 per cent to S$275.6 billion.

Although the fourth quarter did see higher specific allowances - for Greater China and Singapore - Mr Gupta said there was no systemic weakness.

But he said "Singapore will be slow this year - there are a lot of restrictions on the SMEs" (small and medium-sized enterprises), and he expects pressure on the property sector to continue. A survey of developers released last month shows that more than 70 per cent of the respondents projected that property prices will fall 5-10 per cent in 2015, and that new sales volume will decline 15-20 per cent.

"No imminent stress but if Singapore has a slow year, we should see some pickup in credit costs," said Mr Gupta.

The Singapore economy is officially expected to grow 2-4 per cent this year: the same forecast as a year ago for 2014. Initial estimates put Singapore's 2014 growth at 2.8 per cent - in the lower half of the government's forecast range and significantly slower than 2013's 3.9 per cent.

DBS has repeatedly done stress tests across the various sectors of the bank's loan portfolio - mortgages, China, oil and gas, and commodities - and has not detected any weaknesses, said Mr Gupta.

"We saw some one-offs in our China book related to the commodity complex," he said, adding that one of the bad debts was for a copper smelter.

"On the portfolio as a whole - in consumer, SME, corporate - in terms of delinquencies, in terms of general stress, we are not seeing anything there. It continues to be relatively solid and strong," he said.

Total allowances were 40 per cent higher at S$211 million in Q4 as specific allowances (SP) increased to S$157 million from S$91 million a year ago.

Rest of Greater China SP rose to S$40 million - up S$31 million, or more than four times from S$9 million a year ago during Q4. About half came from Taiwan and were related to last July's gas explosions in southern Kaohsiung city, said a DBS spokeswoman. Singapore SP in Q4 of S$29 million were for SME loans, she said.

On Singapore mortgages, Mr Gupta said delinquencies in the mortgage book have been "reducing" because most of the borrowers are owner occupiers and the loan-to-value ratio is low.

According to the Credit Bureau, defaults in DBS mortgages are much better off than the rest of the system, the CEO added.

READ MORE: DBS Q4 earnings hit by higher allowances

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