Deteriorating ASEAN loans threaten Singapore’s largest lenders

UOB, OCBC are most at risk.

The rising number of ASEAN non-performing loans (NPLs) is a key threat for Singapore’s three largest banks, a report by Credit Suisse revealed.

In particular, UOB's and OCBC's ASEAN exposure is likely to remain under the scanner in the second half, as any deterioration could increase earnings risks.

Credit Suisse noted that UOB is most exposed to ASEAN among peers, while DBS is the least exposed to ASEAN-related credit risks and NIM pressure.

“While we remain comfortable about UOB's relatively better liquidity and provisioning levels, the market sentiment is likely to be muted. [UOB’s] management appears quite confident about the asset quality of the Malaysia book, it appears more concerned about Indonesia,” the report said.

Meanwhile, OCBC saw more non-performing loans in Malaysia and Indonesia from oil and gas accounts.

“OCBC CEO mentioned he expects to see a challenging environment in the near term, especially in the ASEAN book. While overall the ASEAN book is likely to see some NPL pick-up, management does not expect a big pick-up in NPLs. Any deterioration in ASEAN asset quality would likely put more pressure on OCBC credit costs on a relative basis. Similar to UOB, ASEAN exposure is likely to remain a drag on sentiment in the near term,” Credit Suisse noted.