SINGAPORE - DBS Group Holdings, Singapore's biggest lender, reported a 6 per cent drop in second-quarter profit on Monday (Aug 8), hit by a sharp jump in bad debt provisions for its clients in the oil and gas services sector, in particular Swiber Holdings.
DBS' net profit came in at S$1.05 billion in the three months ended June, versus a S$1.12 billion profit a year earlier. That compared with the S$1.07 billion average of five analysts in a Bloomberg survey that was compiled before DBS revealed losses related to Swiber.
DBS' provisions for non-performing loans more than doubled to S$336 million in the three months to end-June from S$132 million a year ago, led by a charge of S$150 million for Swiber Holdings Ltd.
DBS on Monday revised up its total exposure to Swiber to S$721 million from S$700 million in July filings.
It said its total non-performing loans (NPLs) grew 31.1 per cent to S$3.26 billion in the second quarter, with NPL ratio sitting at 1.1 per cent, up from 0.9 per cent a year ago and 1 per cent a quarter ago.
DBS said it had S$23 billion exposure to the oil and gas sector, of which S$7 billion was to oil services firms excluding Swiber.
United Overseas Bank and Oversea-Chinese Banking Corp have also flagged concerns about loans to the oil and gas services sector - a key industry in Singapore. UOB has a more than US$35 million exposure to Swiber, the Business Times reported on Friday, citing a court document.
Swiber, which provides construction services for international oil and gas projects, filed a petition last week to liquidate its operations, after facing payment demands from creditors. The firm subsequently dropped the liquidation in favour of a plan to operate under judicial management, which would allow it to continue business under court supervision while it attempts to turn itself around.
Moody's Investors Service warned last Thursday that the funds Singaporean banks had set aside to cover souring exposures to the oil and gas sector - hit by a prolonged price slump - were not enough.
Announcing the results on Monday, DBS chief executive Piyush Gupta stressed that the bank's balance sheet remains healthy. Allowance coverage was at 113 per cent in the second quarter.
Before allowances, DBS continued to see broad-based growth, with profit for the quarter rising 10 per cent to S$1.63 billion.
Net interest income increased 5 per cent year-on-year to S$1.83 billion on a net interest margin of 1.87 per cent - up from 1.75 per cent a year ago.
Non-interest income also grew, up 13 per cent to S$1.09 billion as fee income rose 8 per cent to a record S$628 million.
DBS said total allowances for the half year rose 6 per cent to S$536 million but it added that the "strong profit before allowances for the quarter and the half year provided a substantial cushion for absorbing the additional net allowances. While the non-performing loan rate rose to 1.1 per cent, allowance coverage continued to be sound at 113 per cent and at 226 per cent if collateral was considered".
DBS declared a dividend of 30 cents per share for the first half, unchanged from a year ago.