Here’s why Singapore banks face plummeting asset quality amidst Swiber fiasco

DBS’ earnings are expected to take a 3.1% hit.

While concerns from the oil & gas sector has been plaguing Singapore banks’ asset quality for some time now, it was completely aggravated when Swiber applied for judicial management.

For example, according to a report by UOB Kay Hian, DBS has exposure of $700m to Swiber and would recognise required specific provisions of S$150m upfront in 2Q16, which will reduce 2016F earnings by 3.1% and lower ROE by 0.3ppt to 9.7%.

On the other hand, OCBC does not have exposure to Swiber and was conservative to recognise NPLs for the O&G sector early.

“Swiber is an integrated offshore construction and support service provider for shallow water oil & gas development. It owns and operates 13 construction vessels and cranes & machineries with carrying value at US$600m and US$45m respectively as of Dec 15,” UOB Kay Hian said.

However, UOB Kay Hian said it is over-leveraged with bank borrowings of US$322.9m, notes payables of US$555.7m and finance lease of US$141.7m as of Mar 16.

“Banks face risk from deterioration in asset quality from the O&G sector. In addition, sentiment remains fragile due to slower global growth and geopolitical uncertainties relating to Brexit (23 June) and US Presidential Election (8 November),” the report said.