OCBC takes a hit from higher bad loans in Q4

Non-performing loans spiked 12% to $306m.

The distress in the oil & gas sector is still on-going for Singapore banking giants, contributing to the increase in non-performing loans.

This is the case with OCBC whose NPL ratio deteriorated slightly from 1.19% to 1.26%. NPLs increased $306m or 12% QoQ in 4Q16, coming mainly from large corporates within the O&G sector.

"We estimated that NPLs for the O&G sector increased by S$237m or 21% QoQ to S$1,343m. 52% of the O&G NPLs, some of which are restructured, are still being serviced (not overdue)," UOB KayHian said in a report.

The offshore support vessels (OSV) sub-sector accounted for 39% of its O&G portfolio, of which 22% are classified as NPLs.

With this, UOB said total provisions were elevated at S$305m (57bp), an increase of 57% YoY. Specific provisions were hefty at $235m due to exposure to the OSV sub-sector.

"Management believes that oil prices have to stay at above US$60/bbl on a sustained basis before charterers would come back to sign medium to long-term contracts (currently, many vessels are tied up in short-term 1-year contracts)," the research firm said.

It added, "The bank reviews cash flows and value of collaterals (apply conservative haircut to valuations provided by professional valuers) and makes the necessary specific provisions every quarter. It also puts in additional general provisions to create a buffer."