Singapore's DBS profit slumps to 2-year low on O&G bad debts

Gupta: ‘I don’t think the worst is over.’ – Bloomberg

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 South-East 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 today, is expected to fall by 7.4% to S$730mil.

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 US$721mil, 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 US$170mil writedown on a joint venture.

S&P Global Ratings said in a report on Wednesday it expects growth will remain flat for Singapore’s banks in 2017.

DBS reported a fourth-quarter net profit of S$913mil (US$643mil), the lowest in two years, and below an average forecast of S$936mil from six analysts polled by Reuters.

Charges for bad loans jumped 87% for the quarter to S$462mil, while its full-year non-performing loan ratio rose to 1.4% from 0.9%.

On a full year basis, though net profit fell 2%, it was up 10% before provisions. And total income rose to a record S$11.5bil, 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% 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 yesterday. 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% premium to trailing book value. I do not see the book value growing by 15% 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.” – Reuters