Should DBS worry about its SGD22bn oil and gas exposure?

DBS expects minimal specific provisions for this portfolio in 2016.

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 state-owned and has strong cash position.

Should DBS worry about its SGD22bn oil and gas exposure?

Dominic Chan – BNP Paribas
Credit cost of SGD743m was 15% below our 29bp forecast for 2015, but NPA coverage fell to 148% from 161% in 4Q15. The NPL ratio was steady at 0.9% 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% in Dec 2015. DBS expects minimal specific provisions (SP) for this portfolio in 2016, due to the strong cash position and state-owned 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% in Dec 2015. DBS budgets 25% deterioration in SP (credit cost) or an additional SGD150m for 2016 vs 2015.

Ng Li Hiang – Maybank Kim Eng
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% secured with a LTV ratio of 50-60% 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.  

RHB Research
DBS’ oil & gas exposure amounted to SGD22bn as at end-Dec 2015. The bank’s producers, traders and processors portfolio, which accounts for SGD130bn, or 59% of total exposure, is not under stress with zero NPL currently.

Approximately 71% of this portfolio consists of short-term loans and 46% are trade loans. The support services portfolio (SGD9bn, or 41% of total exposures) has a NPL ratio of 1.3%.

Management stress-tested its oil & gas exposures at USD20 per bbl and is confident there be no additional SPs in 2016. But should oil prices stay at around the USD20 per bbl mark throughout 2017-2018, losses would be expected but SP would likely be limited to SGD150m-200m (c.7bps of loans).

Average exposure in the oil & gas segment is SGD500m-600m with 65% of exposures collateralised with loan to value (LTV) of 50-60%.

Management expects minimal SPs in 2016 from this portfolio. DBS has also demonstrated good ability to work with clients to sell their vessels at prices that comfortably cover the loans outstanding.