Will the O&G market's increasing turbulence capsize Singapore banks’ credit profiles?

Loss-absorption buffers have never been more vital.

Despite the shake-up that came on the heels of Swiber’s liquidation-turned-judicial-management fiasco, Singapore banks’ credit profiles are expected to stay resilient.

According to a report by Fitch Ratings, Singapore’s banking heavyweights DBS, OCBC, and UOB have sufficiently strong loss-absorption buffers to survive rising, cyclical global risks.

Fitch noted that turbulence will continue to haunt operating conditions in the oil and gas (O&G) sector in the near term.

“Oil and gas-related NPLs—arising either through loan restructuring or other forms of stress—are likely to increase if crude oil prices remain depressed, while less efficient and more highly leveraged borrowers will become increasingly vulnerable the longer the current economy remains lacklustre,” stated Fitch.

However, there is only a modest increase expected in nonperforming loan (NPL) ratios for the three banks. The weighted-average NPL ratio for the three remained low at 1.23% at end-June 2016, compared with 1.11% at end-March 2016 and 1.06% at end-2015.

“Nonetheless, we think the three local banks can face additional macroeconomic headwinds in light of their strong and liquid balance sheets, sound lending practices and adequate profitability. Loan-loss reserve cover was reasonably strong at a weighted average of 113.3% at end-June 2016,” Fitch posited.