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Singapore bank stocks battered by more O&M bad news

Investors fear Ezion's surprise suspension, massive losses from Nam Cheong and Marco Polo will further hurt banks' exposure

Ezion's trading suspension took many by surprise as it had been seen as a potential survivor of the oil and gas downturn.


SINGAPORE banks' exposure to the oil and gas sector is back in the spotlight after the surprise suspension of Ezion Holdings and heavy quarterly losses - totalling almost S$1 billion - suffered by Nam Cheong and Marco Polo Marine.

In the stock market on Tuesday, DBS, OCBC and United Overseas Bank fell by as much as 1.5 per cent and dragged the benchmark ST Index into the red.

When asked about their exposure to the three beleaguered firms, DBS said the bank does not comment on specific names while UOB declined to comment.

OCBC spokeswoman Koh Ching Ching said that while the bank is not able to comment on specific customer loans, it has since the third quarter of 2015 undertaken steps to pro-actively classify several accounts in the oil and gas sector for close monitoring and assisted customers to reschedule and restructure their loans.

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"Although the sector remains under stress, sufficient provisions have been set aside. The overall quality of our loan portfolio remains stable - in the second quarter of 2017, we disclosed an overall NPL ratio of 1.3 per cent, unchanged from the preceding two quarters," said Ms Koh.

On Monday, offshore and marine group Ezion Holdings said it has suspended trading and is talking to stakeholders to discuss financing options after it stayed in the red for the third consecutive quarter, with a Q2 loss of US$2.57 million.

The latest development for Ezion took many by surprise as it had been seen as a potential survivor of the oil and gas downturn.

Ezion also has the largest borrowings of the three, almost US$1.5 billion.

Nam Cheong, the Malaysian shipping firm, announced on Monday it had plunged into the red with a net loss of RM2.02 billion (S$640 million) for its second quarter ended June 30, against a profit of RM3.04 million a year ago, mainly due to assets impairment and write-downs of RM2 billion.

Nam Cheong, which called for a suspension on July 20, has total borrowings of RM1.8 billion and said it has also taken steps to review its options to restructure its businesses, operations and balance sheet.

Also on Monday, Marco Polo Marine reported a net loss of S$304.23 million for its Q3 ended June 30, deepening from its S$6.41 million loss a year ago. The ailing company has total borrowings of S$248 million and has suspended trading of its shares since May 2017 as it embarked on a debt refinancing and restructuring plan.

During their Q2 reporting season a few weeks earlier, the three banks had increased provisions for their oil and gas and shipping exposure; their non-performing loans also rose mainly due to the struggling sector.

At DBS's results briefing, chief executive Piyush Gupta gave a muted assessment of its oil and gas portfolio, and warned of more provisions to come.

"While contracts are picking up, the oil-and-gas service players don't have any pricing power," Mr Gupta said. The rates today are barely able to cover operating expenses for such players, he added.

Even as there are efforts by support service players to repurpose vessels, such work not only requires some capital expenditure, but also creates repurposed vessels that again do not command higher rates.

Mr Gupta warned of bigger specific allowances than expected, given the continued stress in the O&G segment.

In the first quarter of 2017, DBS had guided for specific provisions at S$1.1 billion (excluding Swiber Holdings) for the full year, and Mr Gupta is now warning that that estimate may be busted.

Similarly, OCBC chief executive officer Samuel Tsien said the industry was not in the midst of a recovery yet.

"We need the oil-and-gas sector to actually improve before the whole situation can be classified as recovering and I don't think we are at this stage yet," said Mr Tsien, referring to oil prices which he said need to be at a sustainable higher level than at current levels.

Oil is trading around US$50 per barrel. Singapore banks have said oil prices have to head to as much as US$70 per barrel before offshore support vessel operators can make a decent margin.

In the stock market, OCBC fell 1.5 per cent to S$11.21; DBS, 1.3 per cent to S$20.78; and UOB, 0.6 per cent to S$23.96.

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