Singapore banks to hold their grounds amidst O&G fiasco: MAS Chief

Local exposure is only about 6%.

Despite the pressures the Singapore banks face with the oil and gas (O&G) exposure, the Monetary Authority of Singapore Chief Ravi Menon claimed that banks would remain resilient.

In a speech, Menon said the banks have been actively managing the risks from the flailing O&G sector.

"The banking system’s exposures to the O&G sector as a proportion of total exposures (i.e. including non-bank loans, debt securities and contingent liabilities) is less than 10%," he pointed out.

He noted that exposures among lower banks are much even lower, only around 6%.

More so, he stated that there has been no systemic problem across the O&G industry, with problems only concentrated in the upstream marine and offshore engineering segment.

"About 60% of the surveyed banks’ O&G exposures are to the more resilient downstream, oil trading, and integrated firms, which are less impacted by the decline in oil prices," he said.

Firms with a focus on oil refining have also fared better on the back of regional demand for refined petroleum products and lower feedstock prices, he added.

In a recently conducted stress test by the authority, it was revealed that the banking system would not do too badly even under some pretty severe scenarios.

The scenario pictured sharp depreciation in regional currencies and oil and commodity prices falling by another 50% in 3 years. A recession in Singapore with unemployment spiking 6% with property prices falling 50% is another scenario.

"Under these rather dire conditions, the banks’ NPL ratios could rise to 8-10% by the end of 2018. That should not be surprising. What’s important is that the banking system will be able to absorb these losses," Menon underscored.