UOB says S$2b of oil exposure vulnerable

Singapore

UNITED Overseas Bank (UOB) could see its non-performing loan (NPL) ratio rise to 2 per cent if oil prices stay lower longer.

Of its S$12 billion exposure to the oil and gas sector, S$2 billion is vulnerable, said Wee Ee Cheong, UOB deputy chairman and chief executive.

"If oil prices stay low, we estimate 20 per cent of the bank's S$12 billion oil and gas exposure may show weakness," he said.

Most of the S$12 billion oil and gas exposure is to "less vulnerable traders and downstream players", he said on Tuesday at the bank's fourth quarter 2015 results presentation. UOB is the first of the three local banks to post Q4 results.

Singapore banks' exposure to the oil and gas sector and China is under intense scrutiny given the region's economic slowdown and the plunge in oil prices to their lowest in over a decade.

UOB said that while the exposure "could be vulnerable, it is well secured".

"But if vulnerable accounts were to actually deteriorate," said Mr Wee, "our credit costs may increase to 35-40 basis points instead of just 32 basis points."

That could mean group NPL ratio rising to a potential 2 per cent, said Lee Wai Fai, UOB group chief financial officer, "if you bring in the rest of the stress test scenarios", adding that it may not hit all at once.

UOB's NPL ratio rose slightly to 1.4 per cent as at end-2015, up from 1.3 per cent at end-September and 1.2 per cent a year ago. The higher NPL was mainly due to non-performing accounts in Singapore, Indonesia and Greater China.

The group reported Q4 net earnings of S$788 million for the three months ended Dec 31, 2015, up 0.3 per cent from S$786 million a year ago.

Total exposure to commodities is S$21 billion as at end-2015, which includes S$5 billion to metals and mining and S$4 billion to agribusinesses.

The group's total exposure to China is S$21 billion, or 6.6 per cent of total assets.

Half of its China exposure is to banks, with 75 per cent accounted for by the top five domestic banks and policy banks. Trade exposure is mostly with bank counterparties, representing 65 per cent of bank exposure.

The non-bank exposure customers include top-tier state-owned enterprises, large local corporates and foreign investment enterprises.

The group's China NPL ratio is around one per cent. Half of the loans are denominated in yuan and about half have tenor within a year. UOB has minimal exposure to stockbroking companies linked to China's stock market and no exposure to the Qingdao financing fraud and local government financing vehicles.

Mr Wee stressed that UOB has to stay disciplined as 2016 looks like another choppy year following 2015. He said that the bank intends to support its customers through good times and bad.

"As long as the company continues to stay healthy, as long as the company's gearing is not high with a strong management, the bank will continue to support them," said Mr Wee.

"We are here to support them, it is a win-win situation for us. If we don't support them, if they collapse, they will turn into NPLs. So we are in this together. This is very important."

Mr Wee said that the bank was "still targeting for growth" as it sees an economic slowdown, not a crisis.

The group is "targeting mid-single digit" loans growth this year, he said. "We could see opportunities for us in this environment as some banks withdraw."

Turning to Singapore property prices, Mr Wee expects them to stay flat or even drop, given the strict financing regime and more new developments coming onstream.

READ MORE: UOB's Q4 profit flat on higher expenses, bad debt provisions