Shaky Foundations

Trouble Building in Singapore

If suppliers to construction firms are worried, lenders should be too.

Investors bemoaning Singapore banks' fraught relationship with oil-services companies may be overlooking another brewing area of trouble -- building and construction firms.

Property developers in the city-state seem fine but their contractors are hurting after almost five years of real-estate curbs. Suppliers are getting worried. Some 60 percent of respondents to a survey by global credit insurance group Atradius said they expected customers to become less timely about payments this year. Average days payable outstanding, a measure of how long a company takes to reimburse its suppliers, has risen to 104 from six two years ago, based on data from 16 publicly traded firms in the industry tracked by Bloomberg.

Bill Slippage

The time it takes for publicly traded construction-related firms in Singapore to pay suppliers has spiked

Source: Bloomberg

Note: According to 16 companies for which Bloomberg has data.

According to Atradius, the situation could get worse. It's expected that insolvencies in the construction sector will increase by about 5 percent in 2017, with firms working on private projects the most vulnerable.

Banks in Singapore aren't ignorant of this fact. In the quarter ended Sept. 30, 2014, DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. reported a combined S$779 million ($550 million) of bad loans from the industry.

Matter of Time

Delinquent loans from the construction sector rose sharply after property curbs were introduced and could rise further

Source: Company filings

Note: Data refers to nonperforming loans reported by DBS, OCBC and United Overseas Bank.

Things have stabilized a little. At the end of December, the three lenders had a combined S$685 million of soured construction debt. But total reported exposure to the industry stands at about S$146.4 billion, so if business failures start to occur, the situation could get ugly quick.

No Payment, Big Problem

In spite of rising delinquencies,, Singapore's three large lenders have record exposure to construction firms

Source: Company filings

Note: Data refers to loans reported by DBS, OCBC and United Overseas Bank.

Investors should get a sense of how much bigger the problem could become on Monday evening, when Singapore's annual budget is unveiled. If property curbs are eased or if stimulus packages for builders are announced, lenders can breathe a sigh of relief.

If neither materializes, oil, gas and shipping won't be the only industries giving bank shareholders grief.

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

    To contact the editor responsible for this story:
    Katrina Nicholas at

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