Big three banks brace for more bad loans as oil rout bites

Collaterals won’t help much.

Singapore’s three largest banks will face an increasing number of bad loans in coming quarters, according to a report by Moody’s.

The report said that the ongoing oil price rout will negatively affect domestic loans, as oil and gas borrowers will face greater trouble when it comes to repaying their debts.

“The banks’ large exposures to oil services companies are particularly risky because these companies have been most affected by the collapse in oil prices. Singapore banks’ exposures to oil and gas services firms are a significant 13%-25% of their common equity Tier 1 capital,” Moody’s said.

According to DBS, only 1.3% of loans to oil-support-services borrowers are already non-performing. Meanwhile, OCBC reported that 14% of its loans to oil services borrowers are nonperforming and are already reflected in its 2015 NPL ratio. UOB expects that up to 20% of oil and gas loans would become non-performing if oil prices remain low this year, with the largest deterioration coming from support services.

“We expect rising pressure for additional provisioning. The banks’ current specific provisions for oil and gas service companies are low because these loans are collateralized. However, if global oil prices remain weak, we believe that the value of such collateral, which includes specialized oil and gas and transportation equipment, will fall owing to weak secondary market liquidity and depressed charter rates, which will require additional provisioning,” said Moody’s.