Southeast Asia's biggest bank by assets has seen its shares tumble 18 percent this year, underperforming rival lenders, on worries that earnings could suffer due to its significant exposure to China through its Hong Kong unit and tough times for the oil and gas sector.
SINGAPORE: Singapore bank DBS Group Holdings posted its lowest quarterly profit in two years as provisions for soured loans to the city-state's oil services industry surged, and it joined smaller rival OCBC in forecasting more pain for that sector.
The city-state's banks, long lauded for their conservative lending practices, have been subjected to a severe test over the past year as a number of local offshore and marine companies have been forced to restructure their loans due to low oil prices, weak charter rates and delays to projects.
The financial results of DBS, Singapore and Southeast Asia's biggest lender by assets, underscore a subdued outlook for the city-state's banks this year and the potential downside risk to share prices that have rallied over the past three months on hopes of a profit boost from higher interest rates.
"I don't think the worst is over," DBS CEO Piyush Gupta told a results briefing in response to a question on what he thought of the oil and gas sector. Gupta, however, said that the bank doesn't expect to be as impacted this year as in 2016.
OCBC, Singapore's No. 2 lender, said on Tuesday that parts of its portfolio, particularly those exposed to the oil and gas services sector, would remain stressed. Its quarterly profit tumbled to a three-year low.
And quarterly profit at Singapore's No. 3 bank, UOB , which reports results on Friday, is expected to fall by 7.4 percent to S$730 million.
Last year, Singapore's banks were caught off-guard by the collapse of oilfield services company Swiber Holdings. DBS had a loan exposure to Swiber of $721 million, the highest among the city-state's lenders, but has since said it made enough provisions for that.
In a sign that the pain in the offshore services sector is continuing, Ezra Holdings warned earlier this month it may have to take a $170 million writedown on a joint venture.
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S&P Global Ratings said in a report on Wednesday it expects growth will remain flat for Singapore's banks in 2017.
"Higher-than-expected provisioning costs represent the main downside risk to profitability," said credit analyst Ivan Tan.
On Thursday, DBS reported a fourth-quarter net profit of S$913 million ($643 million), the lowest in two years, and below an average forecast of S$936 million from six analysts polled by Reuters.
Charges for bad loans jumped 87 percent for the quarter to S$462 million, while its full-year non-performing loan ratio rose to 1.4 percent from 0.9 percent.
On a full year basis, though net profit fell 2 percent, it was up 10 percent before provisions. And total income rose to a record S$11.5 billion, driven by higher loan volumes and improved net interest margin.
The wealth management business, a key focus for DBS, which bought Australia and New Zealand Banking Group's wealth and retail business last year, reported a 19 percent jump in income to a record high last year.
Overall, DBS expects mid-single digit growth in loan and income in 2017.
The bank's stock was little changed on Thursday. But its shares have risen by about a fifth over the past three months, and given the prolonged pain from bad debts related to the oil sector, some analysts question the stock gains of banks.
"We have been highlighting that these banks were trading at about 15 percent premium to trailing book value. I do not see the book value growing by 15 percent year-on-year in these circumstances," said Jefferies analyst Krishna Guha.
"There is room for disappointment in terms of share price and therefore we have been cautious on these stocks." ($1 = 1.4186 Singapore dollars) - Reuters
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