Singapore Banks can’t be relaxed about rig-building woes

epa03032338 Women walk past a sign outside a branch of the Bank of Singapore in downtown Singapore, 13 December 2011. Risks to global financial stability have increased significantly in the second half of this year and a protracted global slowdown could weigh on Singapore's economy the island nation's central bank (MAS) said in its 12 December 2011 report. 'Contagion (in Singapore) from the sovereign debt crisis has to-date been largely limited to the equity market. Financial institutions continue to be well-capitalized. Local banks' earnings remain robust and asset quality has improved steadily', the MAS said.  EPA/STEPHEN MORRISON


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.
Completing the package, United Overseas Bank (UOB) 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.
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.

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