Banks' profits to slide further as higher loan loss provisions bite: Moody's

O&G loans will require higher allowances.

The profits of Singapore's three largest lenders are under threat from higher provisions for shaky oil and gas loans, according to a report by Moody's.

The report noted that banks' specific provisions for oil and gas companies are still low, and are likely to rise in coming quarters as the value of borrowers' collateral drops.

"The banks’ exposures to oil and gas and to other commodity companies remain significant. We expect that NPLs will increase in this lending segment—particularly for oil and gas services loans which include offshore marine borrowers—because we expect global oil and other commodity prices to remain low for longer," Moody's said.

In the first quarter, OCBC reported the weakest quality of oil and gas loans, with 7% of loans classified as non-performing.

“Overall, the banks’ capitalization will remain stable or improve moderately, because lower capital utilization from slower business growth will help offset higher risk weights from negative credit migrations and upcoming changes to Basel guidelines on capital computation,” Moody’s added.