Regional lenders face rising credit pressure

Credit quality problems will continue to affect regional corporates and banks this year as challenges like China's slowdown and plunging oil prices persist, rating agency Moody's said.

Singapore banks will also remain under pressure from their loan book exposure to the struggling energy and marine sectors, but the risks will be manageable.

"We are seeing a rising level of corporate stress. That, coupled with slow growth, and with commodity downturn, is leading to a deteriorating operating environment and asset quality in many banking systems that we rate," Moody's corporate finance vice- president Rahul Ghosh said Tuesday at a regional briefing.

More corporate borrowers in Asia may not be able to service their bank loans this year, as the economic slowdown deepens. China yesterday reported a 6.9 per cent growth for 2015, its lowest in 25 years.

The struggle is made more difficult for oil and gas as well as offshore marine operators, with Brent crude still below US$29 per barrel.

This has led to widespread spending and production cuts in the industry, senior corporate finance credit officer Vikas Halan said. "We are expecting a reduction in capital expenditure, anywhere from 20 per cent to 30 per cent."

He noted Petronas announced on Tuesday a RM50 billion (S$16.3 billion) cut in capital and operating expenditure over the next four years.

DBS, OCBC and United Overseas Bank will not be immune to non-performing loan issues in their portfolios exposed to China and the oil market, said Mr Gene Fang, Moody's associate managing director for financial institutions.

"There are definitely asset quality challenges for Singapore banks in the horizon. But at the same time, the provisions in place and the capital levels of the banks provide a significant amount of buffer."

The banks are rated AA1 by Moody's with a stable outlook.

"In terms of exposure to China, a lot of that is driven by trade finance, which comes off pretty quickly and allows the banks to adjust quickly," Mr Fang added.

Wong Wei Han

A version of this article appeared in the print edition of The Straits Times on January 21, 2016, with the headline 'Regional lenders face rising credit pressure'. Print Edition | Subscribe