OCBC hit by oil and gas exposure

OCBC's net allowances for loans and other assets swelled 57 per cent to $305 million for the quarter to Dec 31, up on the $193 million in the same period a year earlier, due mainly to accounts in the oil and gas support services sector.
OCBC's net allowances for loans and other assets swelled 57 per cent to $305 million for the quarter to Dec 31, up on the $193 million in the same period a year earlier, due mainly to accounts in the oil and gas support services sector.PHOTO: BLOOMBERG

Lender's stock sinks after it reports 18% slump in net profit for quarter to Dec 31

The damage inflicted on Singapore banks by the battered energy sector continues, with OCBC Bank revealing a jump in provisions for bad loans in its fourth-quarter earnings.

This reignited concerns over how much local lenders are exposed to the industry, and sent OCBC shares sliding nearly 4 per cent to their lowest in more than six months.

The stock sank 37 cents to $9.38 yesterday after the lender announced its results in the morning. The two other local banks also took a hit: DBS Group Holdings fell 63 cents or 3.3 per cent to $18.28, and United Overseas Bank (UOB) lost 37 cents or 1.8 per cent to $20.70.

OCBC, the first of the Big Three banks to report earnings this week, posted an 18 per cent drop in net profit to $789 million for the three months to Dec 31, on the back of higher allowances for loans as well as lower net interest and non-interest income.

Net allowances for loans and other assets swelled 57 per cent to $305 million, up on the $193 million in the same period a year earlier, due mainly to accounts in the oil and gas support services sector.

Its non-performing loan ratio stood at 1.26 per cent, higher than the 0.93 per cent previously, while non-performing assets, which included a number of Singapore oil and gas services companies, surged 42 per cent to $2.89 billion, group chief executive Samuel Tsien said.

Nearly 10 per cent of OCBC's $13.4 billion worth of oil and gas loans had soured, compared with 6.4 per cent a year earlier.

  • AT A GLANCE

  • NET PROFIT:
    $789 million (-18%)

    REVENUE:
    $2.18 billion (-5%)

    DIVIDEND PER SHARE:
    18 cents (Unchanged)

Some accounts remain under pressure, and OCBC believes the energy industry will continue to struggle despite the recent rise in oil prices. "At this point... I am not able to say whether the stress in the oil and gas sector has ended," Mr Tsien said. "There will continue to be volatility, uncertainty and more distress" for the next six months.

The local banks' charges for bad debt in the energy industry have been in the limelight since last year. The focus grew particularly intense after oilfield services firm Swiber Holdings became the biggest local name to fall victim to the downturn, triggering a massive ripple effect in the financial industry.

Mr Tsien said the problem has "deepened but not broadened", as no new names have emerged in the bank's evaluation of distressed accounts over the past six quarters.

"We will continue to help our clients in the impacted sectors to deleverage and restructure their debts while being prudent in our risk management processes," he said, adding that the quality of the overall portfolio remained sound.

Net interest income for the fourth quarter shrank 7 per cent to $1.25 billion, due mainly to lower net interest margins from the continued compression in customer loan yields. Non-interest income slipped 4 per cent to $926 million as fee income growth was more than offset by lower net trading income and life assurance profit.

OCBC has proposed a final dividend of 18 cents per share, the same as last year.

A version of this article appeared in the print edition of The Straits Times on February 15, 2017, with the headline 'OCBC hit by oil and gas exposure'. Print Edition | Subscribe