DBS worries about SGD22b oil and gas exposure
Oil and gas exposure has been causing much headache to Singapore's biggest banks. But of the three banks, DBS seems to be the most confident of its O&G exposure.
Analysts note that there will be minimal specific provisions (SGD150m-200m) for this portfolio this year as its customers are mainly stateowned and has strong cash position.
Credit cost of SGD743m was 15 percent below our 29bp forecast for 2015, but NPA coverage fell to 148 percent from 161 percent in 4Q15. The NPL ratio was steady at 0.9 percent in 4Q15, flat q-q, supported by SGD211m NPA upgrades and recoveries in 4Q15.
DBS's total commodities exposure of SGD34b was unchanged in 4Q15. DBS did not see stress for its O&G producers, traders and processors, totalling SGD13b in 4Q15.
The NPL ratio for its SGD9b O&G support services exposure was 1.3 percent in Dec 2015. DBS expects minimal specific provisions (SP) for this portfolio in 2016, due to the strong cash position and stateowned nature of its customers.
Even with a USD20b per barrel stress test assumption, DBS doesn't expect additional SP for its O&G exposure in 2016. The NPL ratio for its SGD12b non O&G commodities exposure was 1.7 percent in Dec 2015. DBS budgets 25 percent deterioration in SP (credit cost) or an additional SGD150m for 2016 vs 2015.
DBS has SGD22b of exposure to O&G of which SGD17b are loans. For O&G, management expects no NPLs from the Producers, Traders and Processors segments.
Within the segment ' other' are SGD9b that includes: 1) shipyards in Singapore; and 2) 10-12 key names in the O&G space where average exposure is SGD500-600m. Such exposure is 80 percent secured with a LTV ratio of 50-60 percent based on the latest appraisal value.
Management stated that even if lower oil prices of USD20 per barrel persist into 2017/18, total provisions will not exceed SGD200m. DBS' oil & gas exposure amounted to SGD22bn as at end-Dec 2015.