Bad loans mounting for Singaporean banks
(27 July 2016 – Singapore) Non-performing loans are starting to become more prominent within Singaporean banks.
Two of the country’s major banks, United Overseas Bank (UOB) (22 percent) and Oversea-Chinese Banking Corp. (OCBC) (61 percent), have reported an increase of bad loans on the year, as of the end of June.
Lending to the oil and gas industry accounted for much of the new bad debt, the banks said in their statements last week. Although the ratio of underperforming loans to total loans at the banks is still small -- at 1.4 percent for UOB and 1.1 percent for OCBC -- they are watching the situation closely given that weak oil prices continue to weigh on the oil and gas industry.
UOB's nonperforming loans totalled S$3.05 billion (A$2.99 billion), up 8 percent from the end of March.
"[For the] next one to two years, the key concern for us is the oil and gas [industry and] the supporting industry for oil and gas," chief executive Wee Ee Cheong told media.
OCBC saw its nonperforming loans increase 9 percent from the quarter ended March to S$2.35 billion.
Its nonperforming loan ratio has been edging up since standing at 0.7 percent a year earlier. In addition to its lending to the oil and gas industry, loans to Chinese state-owned manufacturers have also been turning sour. Chief executive Samuel Tsien said the bottom for the oil and gas sector has yet to come, and it will take "at least two more quarters before we can have some certainty."
"We will not lead you to believe [the nonperforming loan] cycle has already peaked," Tsien said
Despite its mounting bad loans, UOB's net profit for the quarter ended June expanded a steady 5.1 percent on the year to S$801 million.
While the bank expects loan volume to grow about five percent for the full year, interest margins will "hold around the level seen in the second quarter, barring further falls in global interest rates," chief financial officer Lee Wai Fai said.
OCBC fared less well on the profit front, with net profit falling 15 percent for the quarter to S$885 million. Net interest income declined by 2 percent amid weak loan demand and a thinner interest margin.
The bank said loans to clients for the quarter ended June decreased by 2 percent, compared to the previous year. In biggest downturn was in the Greater China region, where loan volume contracted 14 percent due to a drop-off in borrowing by Chinese companies in offshore markets such as Hong Kong.
The bank expects loan growth for the full year to be in the "very low single digits," Tsien said.
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