Swiber's woes point to further pressures on Singapore banks: Moody's

A Swiber logo at their office in Singapore.
A Swiber logo at their office in Singapore.PHOTO: REUTERS

SINGAPORE - The move by Singapore-listed offshore oil services company, Swiber Holdings, to apply for judicial management point to further asset quality challenges for Singapore banks for the remainder of 2016, credit ratings agency said in a report out on Monday (Aug 1).

Singapore's Big Three banks - DBS, UOB and OCBC - are among the principal bankers for the offshore services companies.

Of the 19 offshore service companies listed in Singapore, ten companies recorded net losses in the first quarter of 2016, Moody's noted in its report on OCBC's and UOB's first-half year's results.

"The banks' exposures to the oil and gas sector remain significant, with UOB's and OCBC's exposure to offshore marine services companies amounting to 13-18 per cent of their CET1 capital and loan loss reserves at end-June 2016," said Moody's.

UOB and OCBC reported their second quarter results last week, while DBS is scheduled to do so on Aug 8.

Moody's said non-performing loans (NPLs) for the offshore services sector will increase as more borrowers face cash flow strains and approach the banks for loan restructuring.

Said Moody's vice president and senior analyst Simon Chen: "For both OCBC and UOB, NPL ratios remained on an uptrend. In addition, the new NPL formation rate has accelerated, led by their oil and gas - particularly the offshore marine service companies - as well as overseas exposures. In addition, returns on assets continued to decline, pressured by weaker revenue growth."

"Notwithstanding these headwinds, their loss-absorption buffers have remained stable, as both banks recorded higher core capital levels due to the slowdown in business and risk-weighted asset growth, which provide support to their ratings," said Mr Chen.

Moody's noted that the NPL ratios of OCBC and UOB rose to new highs in the second quarter, driven mainly by their oil and gas services loans and foreign loans.

In Singapore, the banks recorded weak loan growth of 4 per cent year on year in th first-half year as relatively stronger growth of mortgages offset weakness in business loans, Moody's observed.

"Overall, we expect low- to mid- single digit loan growth for both banks in 2H2016, driven by continued softness in macro-conditions in Singapore and the region," said Moody's.