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Singapore banks' sour loans in focus as oil service sector stresses
[SINGAPORE] DBS Group Holdings and smaller rival United Overseas Bank are set to report their lowest quarterly profit in at least two years, hurt by bad loans provisions for a battered oil services sector.
Nearly a dozen Singapore-listed firms in the offshore services sector have sought to restructure their bonds and loans over the past two years to stay afloat, hit by a slump in orders as oil prices remain low by historical standards.
Stress in the sector, highlighted by Swiber Holdings decision last year to restructure under judicial management, does not appear to have abated. Ezra Holdings this month flagged it may have to take a US$170 million writedown on a subsea services joint venture.
All three of Singapore's listed banks reported increases in third-quarter charges for soured loans, with DBS in particular booking a doubling to S$436 million. The extent of further provisions in the fourth quarter and the outlook for 2017 will be key focus as the lenders report next week.
"To a certain extent, the credibility of managements' is on the line as well when they say there are sufficient provisions being provided for and we'll see whether this is the case," said Christopher Wong, senior investment manager at Aberdeen Asset Management Asia, which owns shares in the banks.
Slowing loan growth - now low single digit growth from double digit growth just two years ago - as China offshore loan demand and regional trade weakens - is also clouding prospects for the lenders.
DBS, Southeast Asia's biggest bank, is expected to show a 6.6 per cent profit decline to S$936 million, its weakest performance since the quarter to December 2014, according to the average estimate of six analysts polled by Reuters.
No. 2 lender OCBC is set to report a 10.8 per cent fall in fourth-quarter net profit to S$856 million, its lowest level in three quarters, while profit at UOB is set to drop 7.4 per cent to S$730 million, the lowest in more than three years.
While some analysts see the banks as well-provisioned, CIMB analyst Jessalynn Chen said the market had not fully factored in asset quality concerns.
Some specific provisions were low at under 20 per cent as the loans were collateralised by vessels and other assets, but that might not be sufficient, she said. "The problem is the valuation of the vessels could be written down, especially for companies with more specialised or purpose-built assets that are unable to find new orders to support cash flows," she added.
OCBC reports on Feb 14, DBS on Feb 16 and UOB on Feb 17.