Singapore banks' profits could fall by up to 8% in FY17

Blame it on Ezra Holdings' US bankruptcy filing.

Ezra Holdings and two other entities, Ezra Marine Services (EMS) and EMAS IT Solutions (EMIT), filed for Chapter 11 protection with the US Bankruptcy Court on 18 March.

According to media reports, court filings showed that DBS has the largest exposure with total secured and unsecured claims at US$328m, followed by OCBC at US$280m and UOB at US$33m.

Maybank Kim Eng says Ezra’s associate, EMAS Chiyoda Subsea (ECS), also filed for Chapter 11 protection on 27 Feb, with unsecured claims of c.US$100m in total for DBS and OCBC, based on court filings. Its subsidiaries EMAS Offshore and Triyards were suspended and halted from trading, respectively.

Here's more from Maybank Kim Eng:

Banks do not disclose their exposure or provisions to Ezra. Therefore, in our effort to quantify the actual impact of Ezra Group, we had to make broad assumptions that will lead to some discrepancy between our estimates and the actual figures.

We estimate Singapore banks have c.SG$217-748m of claims and borrowings to Ezra Group, based on court filings and bank borrowings.

If we assume O&G support services’ NPLs require specific provisions of 50 cents per dollar of problem loans, and the estimated claims/borrowings for Ezra Group are classified as NPLs, FY17E profits may fall by 3-8%, based on our estimates. Having said that, we believe banks have already classified loans to Ezra as NPLs and made some provisions for it.

We think it is reasonable to believe that provisions will remain elevated and risks of further defaults remain.

However, the rate of new NPL formation from the O&G sector is likely to ease this year as we believe the chunky exposures have been recognised as NPLs. We currently estimate specific provisions over average net loans to be c.29-37bps across the banks for FY17E.