Malaysian banks brace for profit hits as O&G firms restructure debt

Pump jacks are seen at the Lukoil-owned Imilorskoye oil field, as the sun sets, outside the west Siberian city of Kogalym, Russia, in this January 25, 2016 file photo. REUTERS

KUALA LUMPUR: Malaysian lenders are bracing for a hit to profits this year as they bump up provisions for sour loans to the local oil and gas services sector that has been battered by the slump in energy prices and cutbacks in projects.

The problem mirrors pain playing out in neighbouring Singapore, where the collapse of oilfield services firm Swiber Holdings Ltd has stoked concerns about the size of the city state’s biggest lender DBS Group Holdings’ exposure to the industry.

Last month, Malaysia’s Perisai Petroleum Teknologi , an offshore oil and gas services provider, said it was aiming to renegotiate terms with bondholders on a S$125mil ($92 million) bond.

A day later, Malaysia’s biggest bank Malayan Banking Bhd (Maybank) reported a tripling in loan provisions that was partly responsible for a 27% decline in second-quarter net profit - further fanning concern about the sector.

“While Malaysian O&G names are in a relatively better liquidity situation than their Singapore peers, we expect this to continue to remain an issue for these banks due to the volatility in oil prices,” said Nomura analyst Tushar Mohata.

But analysts also note that while Malaysian banks’ have some US$10bil in exposure to the oil and gas sector overall, this represented just 3% of their gross loans as of June.

On an individual basis too, Maybank and rivals CIMB Group Holdings Bhd and RHB Bank Bhd all have 3-4% of their total loans in the oil and gas sector.

By contrast, loans to the sector accounted for about 6% of total loans at Singapore’s three listed banks. DBS has some US$17bil in exposure to the sector, Maybank has just US$4.6bil.

“We expect the impact on profits to be manageable. Despite increased stress over the last few years... banks’ revenues have been sufficient to absorb the higher impairment costs and profitability has remained adequate,” said Elaine Koh, a director at Fitch Ratings.

Since Maybank reported results last month, 13 analysts have cut their predictions for annual net profit forecast to an average RM6.15bil, a decline of about 10% from last year and 6.6% lower than earlier estimates.

Still, chances are more loans to the sector are likely to go sour, particularly if oil prices, which have slumped 60% over the past two years, do not see a significant pick-up.

A planned cost cutting drive by state oil firm Petroliam Nasional Bhd (Petronas) of up to US$12bil over four years is also set to exacerbate woes.

UOB KayHian analysts have highlighted several offshore services firms as having risky gearing levels. These included UMW Oil & Gas, which it said had maturing short-term loans worth RM2bil, as well as Dayang Enterprise Holdings Bhd.

UMW declined to comment. Dayang said the firm has enough cash to comfortably ride through the next two years.

“Indeed, we have a few sizeable loans but none are due in the next one year, and we have also not defaulted on any loans so far. We will still be able to sustain the company even if operations stops,” Bailey Kho, head of corporate affairs at Dayang, told Reuters. - Reuters.