Oil, gas sector still strained, but positive signs emerge

Indicators like chartering rates not rising and a lack of substantial new capital coming in signal that the pressure on the oil and gas industry may continue for some time. But the stress has not been increasing, said OCBC boss Samuel Tsien.
Indicators like chartering rates not rising and a lack of substantial new capital coming in signal that the pressure on the oil and gas industry may continue for some time. But the stress has not been increasing, said OCBC boss Samuel Tsien.PHOTO: AGENCE FRANCE-PRESSE

OCBC chief points to slight hike in oil-drilling activity, chartering, oil prices amid doldrums

The pain afflicting the oil and gas sector will continue for some time, said OCBC chief executive Samuel Tsien yesterday.

Mr Tsien told a results briefing: "Unfortunately we do not see a noticeable uptick in chartering rates, and no substantial new capital coming in."

However, he said the stress has not been increasing and added that there have been positive signs, including a slight increase in oil-drilling activity, chartering becoming more active, and oil prices that have now hovered above $50 for quite a while.

Mr Tsien also noted that "there were talks among oil-producing countries that the current control on oil output will be extended, so there will not be a continuously increasing supply from them".

He added that oil and gas exploration development is a long-term investment and "capital expenditure has not increased for the past three years".

"How long can that wait? It could be two more years or so, but if it's more than five years, it will have a negative impact on the future of oil development. So there seem to be some indicators that oil majors will start some drilling activity."

While the energy sector may be in the doldrums, Mr Tsien told the briefing that OCBC's three core businesses - banking, insurance and wealth management - helped lift earnings in the third quarter.

  • AT A GLANCE

  • Q3 Total income: $2.36 billion (+7%)

    Q3 Net profit: $1.06 billion (+12%)

Net profit rose 12 per cent to $1.06 billion for the three months ended Sept 30 compared with the same period a year earlier, slightly higher than a $1.01 billion average forecast in a Bloomberg poll of seven analysts.

Total income rose 7 per cent to $2.36 billion, while loans increased 11 per cent to $232 billion.

The non-performing loan ratio was 1.3 per cent, stable since Dec 31.

Total non-performing assets (NPAs) came in at $2.98 billion as at Sept 30, 15 per cent higher than the $2.59 billion recorded a year ago, mainly led by the downgrade of corporate accounts in the oil and gas support services sector.

Mr Tsien noted that as at Sept 30, NPAs from the oil and gas sector were 50 per cent of total NPAs, and "we'll continue to address it, and help customers deleverage to ride over the industry cycle".

The new NPAs recorded in the third quarter totalled $409 million, with about 38 per cent of those from the oil and gas sector, he added.

Quarterly net interest income grew 12 per cent to $1.38 billion, driven by strong lending growth across the group's corporate and consumer businesses.

Net interest margins - the difference between interest income generated and the amount of interest paid to lenders - was 1.66 per cent, up from 1.62 per cent a year earlier.

Fee and commission income climbed 14 per cent to $488 million, boosted by the quarterly wealth management fee income, which grew 32 per cent to $205 million.

This was partly owing to the inclusion of the former wealth and investment management business of Barclays here and in Hong Kong.

Mr Tsien noted that wealth management will continue to be a strong driver for the bank, and become an "increasingly important segment for the group... as the accumulation of wealth should continue".

Quarterly earnings per share was 25 cents, compared with 22.3 cents a year ago, while net asset value was $8.76 a share as at Sept 30, compared with $8.31 as at Dec 31.

OCBC shares closed two cents higher at $11.57 yesterday.

A version of this article appeared in the print edition of The Straits Times on October 27, 2017, with the headline 'Oil, gas sector still strained, but positive signs emerge'. Print Edition | Subscribe