Mixed signals from Singapore bank earnings
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Southeast Asia

Mixed signals from Singapore bank earnings

Stressed situation in oil and gas exposures weigh on annual results, but CEOs hope to see a wealth management upside.

By Chris Wright

Samuel Tsien-600
Samuel Tsien, CEO of OCBC

The annual results announcements of Singapore’s three banks all followed a common theme: exposures to oil and gas service businesses are coming back to haunt them; and, for two of them at least, wealth management is the future.

OCBC reported an 11% drop in net profit year-on-year of S$3.47 billion ($2.45 billion). With it came news that the non-performing loans ratio has more than doubled since March 2015, from 0.6% to 1.3%. Almost all of that is the result of the oil and gas support sector, which accounts for 0.61 percentage points of the 1.3%. It was negligible less than two years ago.

Over at DBS the bank’s annual net profit, at S$4.24 billion, was down 2% on the previous year. Here, NPLs have risen from 0.9% a year ago to 1.4% today and allowances have doubled in a year to S$1.43 billion; again, oil and gas support services were the culprit.

UOB’s S$3.1 billion profit was down 3.5% for the year. NPLs grew from 1.4% to 1.5% over the year, although at least they were better than the previous quarter. Specific allowance on loans more than doubled to S$969 million – again, mainly due to oil, gas and shipping.

No surprise

This did not come as a great surprise. The sector’s troubles were illustrated back in August when Swiber, a marine engineering company listed in Singapore, was placed under a rescue plan to be supervised by the country’s courts after defaulting on a coupon payment. All three Singaporean banks are large lenders to the country’s oil and gas services sector.

The problem is that nothing seems to be improving and there is little reason to expect that it will do so any time soon.

“We believe that the stressed situation in oil and gas is going to continue despite the fact that the oil price has risen to above $55 [a barrel],” OCBC CEO Samuel Tsien told a media briefing. “Our estimation is that for the operators to be able to earn the margin they will require for their operations, the oil price should be at $70 or above.

“We really need oil prices to be sustainable, and for the charterers of this equipment to engage medium-term charters. Until that happens, it is difficult to say this is the end of the difficulties our oil and gas clients are under.” 



In terms of the cultural integration of the business, we do not see any issues we have to address. We are very happy with the integration and have already seen growth - Samuel Tsien, OCBC


This is the problem with oil and gas services. The industry, a key niche for Singapore, does not automatically recover because oil prices do, but recovers only when the people who need their services are so confident in the future that they engage charters again.

“I think I have been fairly consistent in telling the analyst community – and the media and the public – that this sector has not seen the end of it,” said Tsien.

DBS’s CEO Piyush Gupta says the sector is “still challenged”, but that he thinks new NPL formation and special provision charges should be lower in 2017 than 2016. He will certainly hope so: DBS has S$7.3 billion of exposure to support services. Some S$1.8 billion of it is to state-owned or government-linked shipyards that can clearly weather the storm, but after that it gets more complicated. 

Another S$2.6 billion is lent to five of the larger industry players, two of which are now non-performing. A further S$2.9 billion is lent to 90 smaller names, of which half of the portfolio is showing weakness – three names were moved to non-performing asset status in the fourth quarter alone.

All three banks are well provisioned and their NPL ratios are still low by regional (and western) standards. But the banks all need a boost. 

Could it come from wealth management? At OCBC, global consumer and private banking has grown from 21% to 26% of pre-tax profits over the last year, and wealth management fee income and assets under management both rose to new highs. The latter reached $79 billion, partly because of the Barclays wealth acquisition, but also because of a remarkable $11 billion of organic growth in a single year.

Very happy

Although not as much of the Barclays business came across as both sides might have hoped, Tsien tells Asiamoney that: “In terms of the cultural integration of the business, we do not see any issues we have to address. We are very happy with the integration and have already seen growth.”

At DBS, wealth management income has shown 21% compound annual growth since 2012, with assets under management at S$166 billion, putting the bank firmly in the top five in the region.

UOB, which has a strong asset management business but is less gung-ho on building a regional private wealth capability than its peers, is going to have to find a different path. Right now its only bright spot is interest income, which for a bank that prides itself on its work with emerging fintechs seems a very old-economy thing to be counting on.


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