Finance

Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.

It's not clear how much of Singapore's bad loans for 2015, the highest since 2009, are due to low commodity prices, because banks don't give a detailed industry breakdown of their assets. Given the city's focus on becoming a global rig-building hub, chances are there's a link. Another report Monday from Sembcorp Marine, the world's second-largest maker of offshore exploration rigs, suggests there's more pain to come.

Sembcorp reported a net loss of S$537 million ($384 million), its first since 2003, and warned of difficulties ahead for the industry as oil prices remain low and more customers cancel or delay orders. The Monetary Authority of Singapore released bad-loan statistics showing that special-mention debt, which is advances showing signs of trouble, and net exposures, the nation's broader bad-loan definition, had risen to the highest level since the global financial crisis.

Souring Relationship
Non-performing loans in Singapore are rising as commodity and property prices drop
Source: Monetary Authority of Singapore

Completing the package, United Overseas Bank said Monday that its non-performing loans rose to S$2.9 billion as of December, up 22 percent from a year earlier and representing 1.4 percent of total loans. The bank set aside S$115 million in the fourth quarter as specific allowances for loans with credit risks, 58 percent more than a year earlier. That jump in provisions ate into its profits.

Among the reasons for the spike were low commodity prices and the Chinese slowdown. Investors should also factor in the worst losing streak for property prices in 17 years as they assess bank books in Singapore. Oil, however, is probably leading the bad news for lenders.

Back in July, analysts had expressed concern about the exposure of Oversea-Chinese Banking Corp. to oil and gas, asking the group's Chief Executive Officer Samuel Tsien about it. He said then that about 6 percent of the bank's loans were to the sector, primarily for offshore support vessels, rigs and liftboats. That portion represented about 86 percent of the bank's commodity-related lending, he said. DBS Group and United Overseas Bank haven't addressed the subject, but it's probable that all the banks are exposed, given that Keppel, the world's biggest rig builder, is also a Singapore company.

A back-of-the-envelope calculation suggests that the exposure could be as high as $12 billion, or as much as 3.6 percent of all resident bank loans in Singapore. The 28 oil-service companies traded in Singapore reported $19.3 billion in total debt in their latest filings. Meanwhile, those companies only have $7 billion of bonds outstanding. The difference has to be with banks. Not all that debt would be parked with the big three, but they almost certainly have a major stake in the in the sector. 

More Debt, Less Income
Singapore's 28 publicly traded oil-service companies owe a record amount and in aggregate are now losing money

If that's the case, and if the level of exposure that emerged in OCBC's analyst call can be extrapolated to the other two big banks, there will be more non-performing loans and provisions to come. Singapore doesn't produce a drop of oil, but it will share the pain of the price drop.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Christopher Langner in Singapore at clangner@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net