Bad debt patches show up in Singapore banks' Q4 results

Singapore

AS the three Singapore banking groups posted their fourth-quarter results this week, the market's focus was on where the lenders stood in terms of bad debt charges and their commodity exposure amid the plunge in prices.

The three banks flagged isolated cases of stress, and in different regional markets that, taken together, upped their specific allowances from a year ago. The trio have also been setting aside a fatter cushion overall for tougher credit conditions ahead.

The deductions against the banks' operating profits were a pre-emptive move against loans that might default later. If banks prove to be too conservative, they can do a write-back later.

To be clear, the ratios of the banks' non-performing loans (NPL) in the fourth quarter were still low. While the ratios fell for both DBS and OCBC, UOB's NPL ticked up one basis point to 1.2 per cent.

The lenders value exposure to commodities differently, but all have guided for their exposure to the segment, including oil, to be roughly 10 per cent.

But they say there has been no systemic hit for now - whether it be exposure to commodities, China, or property.

DBS, which has 35 per cent of its loans linked to Hong Kong and China, set aside one charge for a copper smelter in China that led to a quadrupling of provisions for the region. All in, allowances were up 40 per cent.

OCBC, which acquired Wing Hang last year, is also confident of the credit quality of the Hong Kong bank, with its Greater China NPL ratio lower than the overall.

Both DBS and OCBC have noted that their China loans remain sound since the credit exposure is to the Chinese banks.

UOB has, from December, joined its two competitors in classifying loans based on where the credit risks sit. This acknowledges that an increasing number of regional loans are booked in Singapore. Correspondingly, its impairment charge for its Greater China loans went to S$4 million, reversing from a restated writeback of S$2 million from a year ago.

In Singapore, UOB took a new provision for lending to a mid-sized property developer, and continued setting aside charges for some shipping loans.

Its total impairment charges rose just 20 per cent, though this was after accounting for a much smaller charge against securities from a year ago.

OCBC registered a doubling in provisions due mostly to the specific allowance against a Malaysian steel company, and for a transport firm in Singapore,

This reflects a conservative take on souring loans, said the bank, highlighting that the proportion of OCBC's non-performing assets that is not yet overdue - that is, still paying interest - is 42 per cent. The same ratio stands at 24 per cent for DBS, and 21 per cent for UOB.

All three banks have not seen broad-based stresses in their mortgages portfolio, especially with the tight labour market in Singapore.

Analysts will now watch if the gains from re-pricing of loans - with the recent spike in Sibor and SOR - will be offset by the competition for deposits ahead. UOB has about 40 per cent loans linked to the two rates, OCBC has about 30 per cent, and DBS is at 80 per cent.

Loan growth, as noted by analysts, is expected to be around high single-digits this year.