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DBS chief executive Piyush Gupta has dismissed the idea that the banks are in another Lehman crisis, joining the chorus from the other two banks in dismissing the markets' fears of a banking meltdown in Singapore.
"Singapore is not a basket case," he said at a results briefing on Monday, adding that the country has strong reserves and a robust financial system, and capital outflows are not as large as some hedge funds have made out.
"The charitable view is that people are misinformed. The less charitable view is that people have an axe to grind," he said.
As the banks come to grips with the impact of low oil prices, they have outlined to investors the efforts taken to restructure lending and sell assets backing certain loans, or have ensured that cashflows from their offshore support customers - their main source of pain - are able to cover debt obligations.
Though the market is pricing in a banking crisis here, non-performing loans (NPLs) are unlikely to hit crisis levels, the banks say. The banks ended 2015 with a significant lift in net interest margin, but are expecting only weak loan growth this year. They will have to ride out the year under uncertain conditions in China and slowing growth at home; DBS, for instance, will slow down its wage growth and hiring, said Mr Gupta.
The banks think bad loans from the region are contained, mainly because counter-party exposure is to the top-tier China banks. Greater China NPL ratios for DBS and OCBC are lower than their respective group NPL ratios.
The stresses from the plunge in oil prices are evident. The oil-and-gas (O&G) portfolio makes up 4 to 6 per cent of the banks' overall loan book. DBS and OCBC each have about 6 per cent in lending to the sector, with the proportion of such loans to the offshore-services segment at 40 per cent for DBS and 47 per cent for OCBC. DBS has S$17 billion in O&G loans, and OCBC, S$12.4 billion.
UOB's loans to upstream companies make up S$3.8 billion, nearly half its S$7.7 billion in total O&G lending, though its total O&G lending is smaller than that of its peers, at 3.6 per cent of total loans. UOB chief Wee Ee Cheong said that if oil prices stay low, 20 per cent of the bank's O&G exposure may show weakness.
DBS said the increase in its fourth-quarter non-performing assets came mainly from two accounts - a fishery company in Hong Kong and an offshore-and-marine company in Singapore. But Mr Gupta said that it has been able to recover parts of the loans by selling or "monetising" the assets backing the loans. The bank is also restructuring loans. "Instead of throwing them to the morgue, we take them to hospital," said Mr Gupta.
All of OCBC's net new NPLs in the last year were from the O&G segment. The bank's focus has been on restructuring the loans. O&G loans are secured against the vessels, but there is no certainty that there would be enough buyers for these vessels if they have to be disposed of to recover part of the loan, said Samuel Tsien, OCBC's group chief executive.
The bank has negotiated the lending terms with O&G support-services players, to ensure that the vessels can be chartered and deployed - even at lower prices. "There's no point in leaving the vessels idle," said Mr Tsien.
Both DBS and OCBC have stress-tested their portfolios at US$20 per barrel. In assessing whether their O&G customers will survive, they have looked at the length of the charter that their customers are committed to. An offshore support firm may be less vulnerable to renegotiation by the oil majors in a short-term charter than in a contract that locks in a much higher price and for longer.
Mr Gupta also said that companies operating in shallow seas can still generate cashflow to pay their debt, and are less badly hit than those in more complex and more expensive deep-sea exploration.
If oil stays at US$20 per barrel for the next two years, the total provisioning impact at DBS would not exceed S$200 million, and will be spread over 2017 and 2018, said Mr Gupta. DBS does not expect more specific provisions for this segment this year.
Analysts have flagged that provisions by banks - a form of reserve taken against earnings - have not kept pace with loan growth, raising concerns that banks are not maintaining their cushions in a timely manner. But Mr Gupta said DBS's budget for provisions in the last two years have matched the reserve needs against bad loans for the last two years.Allowances for the three banks averaged just over 25 basis points (bps) of gross loans for the full year. In 2009, it was 132 bps.
DBS does not expect its NPL ratio to go beyond 1.3 per cent, said Mr Gupta; in 2009, the bank's NPL ratio hit 2.9 per cent. Likewise, OCBC's Mr Tsien said its NPL ratios would not breach the level seen during the global financial crisis, when it peaked at 1.9 per cent.
UOBsaid its NPL ratio may hit 2 per cent. In 2009, it was higher.
DBS's 2015 NPL ratio remained unchanged at 0.9 per cent from 2014 - constant for seven straight quarters. UOB's NPL rose to 1.4 per cent last year, from 1.2 per cent the year before; OCBC's NPL ratio stood at 0.9 per cent, up from 0.6 per cent in 2014.