Bulls And Bears

Banks' credit quality fears drag STI down

Index suffers biggest single-day slide since October, following news of OCBC's results

The local benchmark index yesterday suffered one of its biggest drops in recent months, on worries over signs of deepening credit quality issues within the banking sector.

The Straits Times Index (STI) slumped by 39.16 points or 1.26 per cent to 3,072.47 - its biggest single- day slide since October - on turnover of 2.78 billion shares. The drop snapped the STI's recent strong run that saw it break above 3,100 to its highest level since August 2015, while Wall Street indices continued to hit new highs amid news that US President Donald Trump will unveil a new tax plan in the coming weeks.

That bullish mood failed to lift the STI, as OCBC announced yesterday a huge profit drop in the fourth quarter, owing largely to surging allowances set aside for oil and gas sector-related loans.

"The highly watched non-performing loan ratio has risen to 1.3 per cent above 0.9 per cent, validating the market's concern about the woes within the oil and gas services sector," said IG market strategist Pan Jingyi, adding that the local banks may be scrutinised further, with DBS Group Holdings and United Overseas Bank reporting results later in the week.

Sure enough, the three banking stocks - accounting for about one- third of STI's weighting - were the major selloff targets yesterday.

OCBC tumbled 32 cents or 3.28 per cent to $9.43 after its results announcement. DBS, the top STI loser, sank 65 cents or 3.44 per cent to $18.26, and UOB shed 33 cents or 1.57 per cent to $20.74.

DBS will announce its fourth- quarter and full-year results tomorrow, and UOB will do so on Friday.

Counters related to offshore and marine businesses were also hit, with Keppel Corp paring six cents or 0.93 per cent to $6.41.

Outside the STI, Ezion Holdings was flat at 38 cents after a volatile session, and the much scrutinised Ezra Holdings - which has warned of writedowns - halted trading.

Only five of the 30 blue-chip stocks making up the STI ended in the black, with Sats adding 14 cents or 2.87 per cent to $5.02. Yangzijiang Shipbuilding rose 2.5 cents or 2.73 per cent to 94 cents.

Another counter in the spotlight after unveiling its results was Jumbo Group. On Monday, the seafood restaurant operator reported a 26.1 per cent jump in first-quarter net profit to $2.6 million, but that was still below analysts' expectations.

DBS Vickers gave Jumbo a "hold" rating on a 12-month 72 cents target price and trimmed its earnings in both financial years 2017 and 2018 by 6 to 7 per cent. Jumbo slid a cent or 1.38 per cent to 71.5 cents.

Top active Noble Group surged 2.3 cents or 11.68 per cent to 22 cents, with 525.6 million shares traded. Shareholders were likely excited over reports that Noble and China's Sinochem are in talks over a possible strategic investment.

Noble stressed yesterday that there is no certainty on whether the deal will be concluded.

A version of this article appeared in the print edition of The Straits Times on February 15, 2017, with the headline 'Banks' credit quality fears drag STI down'. Print Edition | Subscribe