Escalating oil & gas default risks won’t sink Singapore’s largest banks: Fitch

They have a combined exposure of around $49 billion.

Credit risks are rising for many oil and gas companies in Singapore, but Fitch reckons that the city-state’s largest banks are well-placed to meet rising default risks from stressed borrowers.

“Singapore banks are well-positioned to withstand potential asset quality deterioration given their disciplined underwriting standards and healthy provision buffers of 128% (as a proportion of non-performing loans),” Fitch said.

The report noted that DBS, OCBC and UOB have a combined oil and gas exposure of around $49bn based on data at end-2015 for DBS and end-1Q16 for the other two. Loans make up 78% of the banks' exposures, though portfolios show differing exposures to producers, offshore support services, traders and downstream sub-sectors.

Oil and gas stresses appeared to have impacted OCBC more than the other two banks in the first quarter, with DBS citing no signs of stress at this point. According to Fitch, the difference could be partially due to OCBC's more conservative NPL classification for restructured loans compared with its local peers.

That said, OCBC's new problem loans are still mostly being serviced, while the internal stress tests of DBS and UOB indicate that the increase in credit charges will remain manageable even under a prolonged low oil price scenario.