SINGAPORE - The plunge in oil prices is catching up with Singapore's three largest banks.
On Thursday (July 28), Swiber Holdings Ltd, a small Singapore company that provides construction services for international oil and gas projects, said it filed a petition to liquidate its operations, after facing payment demands from creditors at a time when its business was under pressure.
DBS Group Holdings, one of the largest lenders to Swiber, said it only expects to recover about half of the S$700 million it loaned to the firm and its units.
DBS and Singapore's two other large banks, Oversea-Chinese Banking Corp and United Overseas Bank, are exposed to the downturn in the energy sector as a result of their lending to local companies which provide construction, shipping and maintenance services to the oil and gas industry. Many of those companies are suffering as the plunge in crude prices since 2014 curtailed exploration and other activity by oil and gas producers.
The financial health of the energy-services companies is the "key concern" for UOB over the next one or two years, chief executive officer Wee Ee Cheong said at a media briefing on Thursday on the bank's second-quarter results. The bank's exposure to Swiber is "manageable," Mr Wee said, though he noted that the wider difficulties in the oil and gas services industry were a factor behind the 17 per cent climb in UOB's nonperforming assets for the second quarter.
Oil and gas-related loans made up 5.3 per cent of gross lending by Singapore banks as of December, a higher proportion than at banks in Korea, Thailand and the European Union, according to Moody's Investors Service. The deteriorating quality of the Singapore banks' loans to energy firms, as well as weaker regional economies, prompted Moody's to downgrade its outlook for the three largest lenders on June 30.
The recent recovery in oil prices from their lows has provided only modest relief, OCBC chief executive officer Samuel Tsien indicated on Thursday in a media briefing on the bank's second-quarter results, which included a 61 per cent jump in nonperforming assets.
"We cannot say it's going to be the bottom yet. We may have two more quarters to go," Mr Tsien said in response to a question on the rise in delinquent energy sector loans.
DBS is due to report its second-quarter results on August 8.
In a sign of how fast the bad-loan problems are worsening, OCBC said new nonperforming assets jumped 91 per cent to S$924 million in the second quarter, mainly because of companies linked to the oil and gas support services sector. Newly soured assets at UOB more than doubled to S$802 million, from S$372 million a year ago.
"New nonperforming-loan generation was the highest seen in this NPL cycle so far," Aakash Rawat, a bank analyst at UBS Group AG in Singapore said in a report last week. "While this was cushioned somewhat by recoveries and upgrades this quarter, it is debatable whether this will continue to be the case in future."
The SGX oil and gas index, which tracks 25 locally-listed firms, fell to a record low last week after news of Swiber's problems surfaced on Thursday. Among the biggest decliners on the index was Ezra Holdings, which provides engineering and construction services to the offshore oil and gas sector. Ezra shares plunged 17 percent over the week.
Another indicator of the woes among Singapore oil and gas service firms comes from the bond markets. A total of 10 Singapore-listed firms in the sector, including Swiber, have asked bondholders to loosen their covenants so far this year, versus eight in all of 2015, according to data compiled by Bloomberg. That includes efforts to extend the maturity of debt and loosen covenants requiring companies to maintain certain leverage levels.
Oil-related firms have S$1.4 billion of Singapore-dollar securities maturing through 2018, with S$325 million due by the end of this year, according to Bloomberg-compiled data on July 18.
Among the three large Singapore banks, only DBS has disclosed its exposure to Swiber. OCBC isn't listed among the oil and gas services firm's main bankers in its 2015 annual report. UOB's Wee didn't quantify the bank's lending to Swiber at the Thursday media briefing.
