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.

Oil is still causing Singapore banks to lose their footing. The city-state's three biggest lenders posted another spike in nonperforming loans because of souring advances to energy companies. Given the rate of deterioration, it may be wishful thinking to predict the worst is behind them.

While United Overseas Bank Ltd. and Oversea-Chinese Banking Corp. were sanguine about the increase, their latest results show just how much pain the oil and gas industry is inflicting. 

UOB's bad-loan ratio rose to 1.6 percent at the end of September from 1.3 percent a year earlier, the bank said Friday. It described the higher allowance for nonperforming loans as within expectations and said coverage remained strong. OCBC, whose NPL ratio climbed to 1.2 percent from 0.9 percent, said its provisioning remained healthy. DBS Group Holdings Ltd., the biggest of the three, posted Monday a ratio of 1.3 percent, also up from 0.9 percent.

Indeed, such levels of soured debt are manageable for well-capitalized banks, and UOB and OCBC qualify on that count, with common equity Tier 1 capital ratios of 13.4 percent and 15.1 percent, among the strongest in the region. Still, dig a little deeper and at the industry level the picture is a lot less reassuring.

Buoyed on Oil
Nonperforming loans at two of Singapore's biggest banks are still low, but they have worsened quickly
Source: Bloomberg

A staggering 18 percent of OCBC's on-balance-sheet loans to the offshore energy services sector have gone sour. The bank has total oil and gas exposure of S$14.1 billion ($10.1 billion), about S$12.2 billion of which is held on its balance sheet. About 42 percent of that is to services companies, it said in a presentation to investors on Thursday. 

Perhaps more telling was OCBC's 43 percent jump in net loan allowances in the first nine months of the year to S$421 million. That means the bank has been forced to review how much of its advances it expects to go bad. Overall, OCBC's bad debt increased 34 percent from a year earlier to S$2.6 billion, while UOB's rose 37 percent to S$3.5 billion.

UOB said nonperforming loans increased by S$440 million in the third quarter compared with the end of June, most of which the bank attributed to the oil and gas sector. The bank has S$13.2 billion of exposure to the industry, with 4 percent of total loans to oil and gas companies, according to its latest report.

UOB posted a 96 percent jump in net loan allowances in the past nine months to S$542 million. The bank's shares fell 2.3 percent after the earnings on Friday, the most in three months.

No Patience
Investors sold UOB stock as its provisions and bad loans spiked
Source: Bloomberg

DBS reported total exposure of S$23 billion to the oil and gas industry at the end of June. In a call with investors after second-quarter earnings, Chief Executive Officer Piyush Gupta suggested less than 2 percent of those loans had gone bad. DBS set aside S$366 million for credit losses during the period, almost three times the figure a year earlier. That surge was largely attributed to the unexpected bankruptcy of oil services company Swiber Holdings Ltd.  

As OCBC's numbers showed, the problems in the oil and gas sector are deepening and broadening. There are a lot more NPLs to come.

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

(Adds DBS NPL ratio in third paragraph.)

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

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net