Banks fear fuel-sector failures

Declining fuel profits have hit Singapore’s financial sector. Source: Wikimedia

 

DBS Group Holdings, the biggest Singaporean lender, is confident it will recover about half of its S$700 million exposure to the collapse of the oilfield services firm, Swiber Holding, as the two other major banks raised fears about loans to the fuel sector.

Swiber’s shares had fallen by nearly 90 per cent since mid-2014, leaving its market value at S$50 million (US$37 million), while the firm’s delays in orders raised concerns and sparked demands for cash.

“If highly leveraged offshore and marine companies are unable to raise capital from equity markets, then they will be left with very little other options other than to file for liquidation or for judicial management,” said Joel Ng of KGI Fraser Securities.

DBS announced that it had exposure to Swiber through loans, bonds and off-balance sheet items.

Oversea-Chinese Banking Corp and United Overseas Bank, Singapore’s next two largest lenders by assets, claimed to have maintained prudent lending structures and capital levels that ensure they were among the world’s safest banks.

But the 60-per-cent fall in oil prices over the past two years is hurting them, as the Asean oil and gas sector forms a large chunk of their business.

Banks are suffering from poor demand for loans from the fuel sector and by more bad deals. Both OCBC and UOB issued a gloomy outlook for the oil and gas sector when they reported earnings on July 28.

DBS announced that it had exposure to Swiber through loans, bonds and off-balance sheet items.

Swiber Holdings became the most significant city-state firm to date to fall victim to falling oil prices, after it filed for liquidation on Thursday.

DBS said it planned to use reserves to offset the half of its exposure that it did not expect to salvage, and expected to be hit with a shortfall of about S$150 million.

The exposure of DBS has raised fears of asset quality deterioration for Singapore’s banks.

Shares in DBS fell for a second straight day on Friday, down 2.5 per cent at S$15.47.

OCBC CEO Samuel Tsien said the services sector continued to face pressure.

“The loan demand is very weak,” Tsien said, after his bank posted a 15-per-cent drop in quarterly profits, hit by lower insurance income. “Our distressed indicators for this portfolio continue to deepen, but have not broadened.”

Over the next 18 months, bonds totalling nearly S$1.2 billion from energy and offshore marine issuers in the city-state would mature, with S$615 million due just over the next five months, according to analysts IFR.

The total OCBC oil and gas exposure was S$12.6 billion, nearly half of which to the offshore oil services sector.

Shares in UOB fell 1.6 per cent on Friday, while OCBC stocks dropped by 1.7 per cent.