Banks brace for profit hits

> Malaysian lenders raise pro­vi­sions for prob­lem loans to bat­tered oil & gas sec­tor

The Sun (Malaysia) - - SUNBIZ -

KUALA LUMPUR: Malaysian lenders are brac­ing for a hit to prof­its this year as they bump up pro­vi­sions for sour loans to the lo­cal oil and gas ser­vices sec­tor that has been bat­tered by the slump in en­ergy prices and cut­backs in projects.

The prob­lem mir­rors pain play­ing out in neigh­bour­ing Sin­ga­pore, where the col­lapse of oil­field ser­vices firm Swiber Hold­ings Ltd has stoked con­cerns about the size of the city state’s big­gest lender DBS Group Hold­ings’ ex­po­sure to the in­dus­try.

Last month, Malaysia’s Peri­sai Pe­tro­leum Te­knologi, an off­shore oil and gas ser­vices provider, said it was aiming to rene­go­ti­ate terms with bond­hold­ers on a S$125 mil­lion (RM379.4 mil­lion) bond.

A day later, Malaysia’s big­gest bank Malayan Bank­ing Bhd (May­bank) re­ported a tripling in loan pro­vi­sions that was partly re­spon­si­ble for a 27% de­cline in

sec­ond-quar­ter net profit – fur­ther fan­ning con­cern about the sec­tor.

“While Malaysian O&G names are in a rel­a­tively bet­ter liq­uid­ity sit­u­a­tion than their Sin­ga­pore peers, we ex­pect this to con­tinue to re­main an is­sue for th­ese banks due to the volatil­ity in oil prices,” said No­mura an­a­lyst Tushar Mo­hata.

But an­a­lysts also note that while Malaysian banks’ have some US$10 bil­lion (RM41.3 bil­lion) in ex­po­sure to the oil and gas sec­tor over­all, this rep­re­sented just 3% of their gross loans as of June.

On an in­di­vid­ual ba­sis too, May­bank and ri­vals CIMB Group Hold­ings Bhd and RHB Bank Bhd all have 3-4% of their to­tal loans in the oil and gas sec­tor.

By con­trast, loans to the sec­tor ac­counted for about 6% of to­tal loans at Sin­ga­pore’s three listed banks. DBS has some US$17 bil­lion in ex­po­sure to the sec­tor, May­bank has just US$4.6 bil­lion.

“We ex­pect the im­pact on prof­its to be man­age­able. De­spite in­creased stress over the last few years... banks’ rev­enues have been suf­fi­cient to ab­sorb the higher im­pair­ment costs and prof­itabil­ity has re­mained ad­e­quate,” said Elaine Koh, a di­rec­tor at Fitch Rat­ings.

Since May­bank re­ported re­sults last month, 13 an­a­lysts have cut their pre­dic­tions for an­nual net profit fore­cast to an av­er­age RM6.15 bil­lion, a de­cline of about 10% from last year and 6.6% lower than ear­lier es­ti­mates.

Still, chances are more loans to the sec­tor are likely to go sour, par­tic­u­larly if oil prices, which have slumped 60% over the past two years, do not see a sig­nif­i­cant pickup.

A planned cost cut­ting drive by state oil firm Petro­liam Na­sional Bhd (Petronas) of up to US$12 bil­lion over four years is also set to ex­ac­er­bate woes.

UOB KayHian an­a­lysts have high­lighted sev­eral off­shore ser­vices firms as hav­ing risky gear­ing lev­els. Th­ese in­cluded UMW Oil & Gas, which it said had ma­tur­ing short-term loans worth RM2 bil­lion, as well as Dayang En­ter­prise Hold­ings Bhd.

UMW de­clined to com­ment. Dayang said the firm has enough cash to com­fort­ably ride through the next two years.

“In­deed, we have a few size­able loans but none are due in the next one year, and we have also not de­faulted on any loans so far. We will still be able to sus­tain the com­pany even if op­er­a­tions stops,” Bai­ley Kho, head of cor­po­rate af­fairs at Dayang, told Reuters.

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