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Update: DBS will see some rise in bad loans
DBS Group Holdings expects to see more loans going sour amid slower growth but the bank is prudent and well prepared, said chief executive Piyush Gupta.
There will be some rise in non performing loans (NPLs), "don't see going beyond 1.3 per cent", he said, referring to the NPL ratio. DBS's 2015 NPL ratio remained unchanged at 0.9 per cent from 2014 unlike its rivals. United Overseas Bank saw its NPL jump to 1.4 per cent in 2015 from 1.2 per cent a year ago. OCBC Bank's NPL ratio rose sharply to 0.9 per cent from 0.6 per cent.
Mr Gupta was speaking at the bank's Q4 2015 results presentation on Monday.
DBS's net profit for the fourth quarter ended Dec 31, 2015, rose 20 per cent to S$1 billion, compared with S$838 million a year ago.
Net profit for the full year 2015, including one-off items, rose 10 per cent to S$4.5 billion, from S$4.0 billion a year ago. Total income for FY2015 crossed S$10 billion for the first time.
DBS chief financial officer Chng Sok Hui said the bank's credit cost is expected to increase to about 25 basis points from 19 basis points in 2015, assuming a 25 per cent deterioration in specific provisions. The overall portfolio is healthy, she said.
DBS has provided for about S$600 million in specific provisions in 2015, similar to 2014, excluding write-backs.
DBS said that the increase in Q4's non performing assets to S$2.8 billion from S$2.5 billion was mainly due to two accounts: a fishery company in Hong Kong and a Singapore offshore marine.
Mr Gupta said NPLs pop up but recoveries are good and the bank is able to monetise the collaterals.
DBS's oil and gas exposure totalled S$22 billion, unchanged from last quarter, of which S$17 billion are loans.
Giving more details, he said the S$13 billion exposure to producers, traders and processors is not under stress. There is no NPL here.
The support services portfolio of S$9 billion includes a shipyard in Singapore and a dozen names in offshore marine. Here the NPL ratio is 1.3 per cent, and the bank expects minimal specific provisions will be needed in 2016.
The cash position and cash flow of these companies is adequate, some are part of larger groups, he said. DBS has stress tested the overall portfolio at oil prices falling to US$20 per barrel and if it stays at that level for the next two years, the total provisioning impact is not more than S$200 million and would come only in 2017 and 2018, he said. DBS does not expect additional specific provisions for this segment in 2016.
Oil prices, currently above US$30 per barrel, have fallen to their lowest levels in 13 years.
On its other commodities exposure of S$12 billion of which S$10 billion are loans, he noted that the NPL ratio here at 1.7 per cent is more than the 1.3 per cent for oil and gas.
DBS sees stress in the coal and iron and steel sectors.
The bank expects losses here in 2016 which is already fully budgeted for.
DBS's China exposure has come down to S$37 billion mainly from a reduction in trade loans. The China exposure was S$50 billion in June 2014. The current NPL ratio is 0.6 per cent. Trade loans have fallen to S$21 billion, from S$36 billion in June 2014.
He said the trade loans are "very solid, continue to be paid". The non trade loans are to major companies like the "CapitaLands" and other large foreign companies, he said.
The bank is building up reserves and managing expenses, he said.
What DBS has not provided for is a sharp RMB devaluation in the next three months or large one-offs like a large corporate collapse "which we don't see happening, but not impossible".
DBS is working with clients proactively, doing sensible things like restructuring, he said.
"Instead of throwing them to the morgue, we take them to hospital," he said.