BIMB shares lead losses among banking stocks

Investors worry about their exposure to troubled O&G firms

PETALING JAYA: Shares in BIMB Holdings Bhd declined, leading losses among banking stocks on fresh worries about financial firms’ exposure to troubled oil and gas (O&G) companies with debt problems.

A market observer said the recent missed payments by Perisai Petroleum Teknologi Bhd and Alam Maritim Resources Bhd may have sparked fears that Practice Note 17 company TH Heavy Engineering Bhd (THHE) could soon follow suit.

“There is market fear that THHE, which has debt in excess of RM300mil, may be next to be unable to meet its debt obligation,” a dealer said.

BIMB’s share price fell 12 sen, extending its losses for the fourth day in a row, to close at RM4.29.

THHE and BIMB share a common substantial shareholder in Lembaga Tabung Haji, which has 29.81% and 51.98% stakes in the two companies. respectively.

As at Dec 31, 2016, THHE’s current liabilities stood at RM319.41mil, arising mainly from borrowings.

However, a source said that BIMB, which wholly owns Bank Islam (M) Bhd, had minimal exposure to THHE.

CIMB Research, in a note on the banking sector yesterday, maintained its neutral outlook on the industry.

The firm, however, was positive on BIMB, calling it “the only bank in Malaysia” that would benefit from the implementation of the Employees Provident Fund’s Simpanan Shariah scheme.

The report also highlighted the impact of debt problems faced by smaller O&G players on local banks.

Alam Maritim recently missed a sukuk principal payment of RM30mil that was due on July 6. CIMB Research pointed out that the company was the second O&G firm in Malaysia to show difficulties in servicing its debt.

“Perisai defaulted on its bond repayment on Oct 16. While the sukuk holders could be partly non-bank financial institutions, the non-repayment of the sukuk could trigger the classification of banks’ lending to Alam Maritim, even if the company is still paying these loans promptly.”

Based on its observation, CIMB Research said the default by Perisai did not have any material impact on banks’ earnings.

“The biggest impact that banks have suffered so far for their exposure to O&G companies was the RM452mil impairment losses incurred by two banks for their exposure to Swiber bonds in Singapore in the second quarter of 2016.”

CIMB Research said the potential impairment loss/provision for exposure to Alam Maritim would be negative for banks, but added that the impact would not be significant.

“Despite the potential rate hike in 2018, we remain neutral on banks, due to the negative impact from the adoption of (accounting standard) MFRS 9, weaker net profit growth in 2018 and unattractive valuations.

“The upside risks to our call are better-than-expected loan and fee income growth, while the key downside risk is a spike in impaired loans,” it said.