June 8, 2017 / 7:24 AM / 4 months ago

Fitch: Singapore Banks Can Withstand OSV Sector Deterioration

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Singapore Banks: Oil and Gas Stress Test here SINGAPORE, June 08 (Fitch) Singapore banks - DBS Group Holdings (AA-/Stable), Oversea-Chinese Banking Corp (AA-/Stable) and United Overseas Bank Limited (AA-/Stable) - are strong enough to withstand a sharp deterioration in their exposure to the higher-risk offshore support vessels (OSV) sector, says Fitch Ratings in a new report. Fitch's stress test found the banks' risky exposure from the OSV sector will be shielded by healthy earning buffers and adequate loan-loss reserve coverage of 103%-118% at end-March 2017. As such, we see limited capital impairment risk, even with a large increase in non-performing loans (NPL). Singapore banks' SGD57 billion combined oil and gas exposure represented 60% of their combined core equity Tier 1 (CET1) capital at end-March 2017. There is reasonable diversification across the broader oil and gas industry within this portfolio and a more moderate SGD17 billion, or 18% of combined CET1 capital, is to the OSV sector. Our stressed scenario analysis shows that banks' 2016 earnings could fall by as much as 60% if the NPL ratios of their OSV portfolios rose to 70%, from around 20% currently, and collateral value halved. The analysis excludes the impact on the banks' other businesses. Fitch used conservative assumptions for the stress test, depicting a failure of almost all OSV companies other than state-owned and government-linked shipyards. Singapore banks saw moderating NPL formation after the 2Q16 peak, but risks remain if stress is prolonged. However, we believe the risks are mitigated by easing economic headwinds and oil-price stabilisation. Fitch expects the credit metrics of rated south-east Asian oil and gas companies to improve slightly in 2017, supported by improved crude oil prices to USD50-55 per barrel. Fitch revised its outlook on the region's oil and gas sector to stable for 2017, from negative in 2016. Fitch's full report, "Healthy Earnings Buffers to Absorb Sharp Credit Deterioration" is available by clicking on the link above and is available at www.fitchratings.com Contact: Wee Siang Ng Senior Director +65 6796 7230 Fitch Ratings Singapore Pte Ltd One Raffles Quay South Tower #22-11 Singapore 048583 Elaine Koh Director +65 6796 7239 Tamma Febrian Associate Director +65 6796 7237 Ryan Foo Analyst +65 6796 7238 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. 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