OCBC flags oil sector woes as Q4 profit hits 3-year low

A man walks towards the Oversea-Chinese Banking Corp (OCBC) headquarters building in Singapore. Net profit for OCBC jumped 29% to a record USS$899mil for Q1, while for DBS it climbed 30% to a record USS$1.23bil, boosted by the sale of a stake in a Philippine lender - AFP Photo.

SINGAPORE: Oversea-Chinese Banking Corp, Singapore's second-biggest lender, flagged worries about a weak oil and gas sector after reporting an 18% drop in quarterly profit to a three-year low, mainly due to a jump in impairment charges.

Singapore banks, long lauded for their conservative lending standards, are taking a hit as companies in the oilfield services industry restructure their bonds and loans in a weak operating environment.

They are also being impacted by low interest rates, shrinking their net interest margins, and a sluggish overall economy that is curbing appetite for new loans.

OCBC CEO Samuel Tsien told a results briefing on Tuesday that parts of the lender's portfolio, particularly those exposed to the oil and gas services sector, would remain stressed. The sector was also a significant portion of OCBC's new non-performing loans, he said.

"We shall remain vigilant and will continue to help our clients in the impacted sectors to de-leverage and restructure their debts while being prudent in our risk management processes," Tsien said.

Singapore's biggest bank, DBS Group Holdings, and No. 3 lender United Overseas Bank report results later this week and investors expect to hear more caution about the outlook for the oil and gas sector.

OCBC's net profit came in at S$789 million in the three months ending December, versus S$960 million a year earlier and an average forecast of S$856 million from six analysts polled by Reuters. Full-year net profit fell 11%.

Net allowances for loans and other assets was S$305 million in the fourth quarter, up 57% from a year earlier.

The lender's shares fell 2.6% by mid-morning on Tuesday, compared to a 0.8% drop in the main Singapore stock index.

Nearly a dozen Singapore-listed firms in the offshore services sector have sought to restructure their bonds and loans over the past two years to stay afloat, hit by a slump in orders as oil prices remain low by historical standards.

Ezra Holdings Ltd this month flagged it may have to take a US$170 million writedown on a subsea services joint venture. On Tuesday, Ezra requested a trading halt to its shares. - Reuters
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