Singapore banks’ second quarter of 2016 results showed pressure on profitability and asset quality, but their credit profiles are expected to remain resilient despite the weaker operating environment, says Fitch Ratings.
In a press release on Wednesday (10 August), the credit rating agency said banks here have “sufficiently strong loss-absorption buffers to withstand rising, cyclical global risks,” and “enjoy steady funding and liquidity profiles and strong capitalisation.”
It also said it expects a modest increase in the non-performing loan (NPL) ratios for DBS Group, United Overseas Bank and Oversea-Chinese Banking Corp.
It added that moderate asset-quality stresses continue to emerge in the second quarter of the year, and were more apparent at DBS which was heavily exposed to Swiber Holdings, an oil and gas services provider that filed for creditor protection in July.
“DBS classified S$651 million of Swiber exposures as non-performing in 2Q16 and set aside reserves of S$400 million. The bank’s total exposure to the troubled group stood at S$721 million at end-July, and DBS will classify the outstanding S$70 million exposure as an NPL in 3Q16,” Fitch Ratings said, adding that the bank’s loan-loss reserve policies are “generally sound.”
UOB, on the other hand, said it will classify its exposure to Swiber as an NPL in the third quarter. According to Fitch, the bank’s ultimate Swiber provisions might be low – given the high level of collateral held against these risks.
Meanwhile, OCBC has said that it has no exposure to the oil and gas firm.
“We expect the banking sector’s oil and gas loans to remain vulnerable amid weak sector fundamentals. However, we believe the rated Singapore banks are positioned well to meet rising credit risks from stresses in the sector because capital buffers are strong, and underwriting procedures are disciplined,” the ratings agency said.
The three rated Singapore banks stated that they had combined oil and gas exposure of S$51 billion at end-June this year, which represented 47 percent of the banks’ combined equity. Total exposure to the more troubled support services sector, which has been badly hit by falling demand, amounted to SGD17bn or 15% of the banks’ combined equity. “These latter exposures mostly tend to be secured,” Fitch said.
“Our internal stress tests show that Singapore banks’ sound capital buffers should enable them to weather a significant deterioration in credit quality. Funding and liquidity positions are also sound,” Fitch added.
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
