The profitability of Singapore's Big Three banks - DBS Group Holdings, OCBC Bank and United Overseas Bank - is under pressure, as seen by their third-quarter (Q3) financial results, said credit ratings agency Moody's Investors Service.
"The Q3 results for DBS, OCBC and UOB show a further weakening in the banks' asset quality and profitability because of the persistent challenges that they face in relation to their oil and gas exposures," said Mr Eugene Tarzimanov, a Moody's vice-president and senior credit officer.
Moody's said it expects that asset quality challenges posed by the troubled oil and gas service companies will persist over the next few quarters, contributing to a further weakening in the banks' asset quality.
"The NPL (non-performing loan) ratios of all three banks climbed to new highs at end-September," said Mr Simon Chen, a Moody's vice-president and senior analyst. "The NPL increases were driven mainly by the banks' loans to oil and gas service companies, a segment within the oil and gas industry that has been the most severely impacted by low oil prices."
But Moody's noted that despite the headwinds that the banks face, all three showed robust loss-absorption buffers.
Fitch Ratings in its report on the three banks on Tuesday said the weighted average NPL ratio for the three banks increased to 1.37 per cent at end-September from 1.23 per cent at end-June and 1.06 per cent at end-2015. But it noted the weighted average provision buffers (as a proportion of NPLs) remained sound, at 102.7 per cent at end-September, despite having fallen from 113.3 per cent at end-June.
The combined oil and gas exposure of the three banks was $47.3 billion at end-September, or 50 per cent of their combined Core Equity Tier 1 (CET1) capital.
Said Fitch: "This may seem high, though the risk is mitigated by the majority of the oil and gas exposure being collateralised. Furthermore, only $16.1 billion of this exposure is to the more vulnerable subsector of offshore support services, which accounted for 17 per cent of banks' CET1 capital."
Moody's similarly noted that "all three showed robust loss-absorption buffers". In particular, during Q3 the banks recorded higher fully loaded common equity Tier 1 ratios, driven mainly by retained earnings and slow balance sheet growth.