Chart of the day: Here's why O&G exposure might decimate Singapore’s banking giants

DBS’ pre-provision income could crumble by over 60%.

Among Singapore’s three banking heavyweights, DBS would be the biggest loser when it comes to of a broader default of a loss severity akin to Swiber.

A report by Moody’s projected a high stress scenario that assumes a 50% probability of default (PD), where more than half of the total debt is held by loss-making companies. It assumes a loss given default (LGD) of 50%, a level similar to that experienced by DBS in its exposure to Swiber, to incorporate losses linked to exposures that are partly covered by collateral and falling collateral values in an environment of a prolonged slump in oil prices.

Moody’s noted that in the severe stress scenario, banks would see nonperforming loans (NPLs) climb 0.5-1 percentage point, withe 2H16 pre-provision income (PPI) crumbling 42%-58% from additional loan loss provisions (stress losses less estimated existing loan loss reserves for oil and gas-related NPLs).

Among the three banks, DBS—which has the highest exposure to the O&G sector—would be worst hit. In the worst stress scenario, nearly 60% of its H2 PPI was decimated by loan loss provisions. DBS and OCBC would also see steep spikes of close to 100bps in their overall NPL ratios under the severe stress scenario, while UOB would see twice that.