February 15, 2017 / 11:18 PM / 10 months ago

DBS profit slumps to two-year low, bad debt charges jump

SINGAPORE (Reuters) - Singapore’s DBS Group Holdings (DBSM.SI) reported a 9 percent decline in quarterly profit and like rival OCBC (OCBC.SI) booked higher provisions for bad loans, hobbled by debt payment woes in the city-state’s oil services sector.

A logo of DBS is pictured outside an office in Singapore January 5, 2016. REUTERS/Edgar Su/File Photo

In what has become a test for Singapore’s banks, long lauded for their conservative lending standards, many firms in the city-state’s oilfield services industry are restructuring their loans, hit by relatively oil low prices, weak charter rates as well as delays to projects.

The results underscored a subdued outlook for Singapore’s lenders this year and the potential downside risk posed by the oilfield services industry to their earnings and share prices.

“We have been highlighting that these banks were trading at about 15 percent premium to trailing book value. I do not see the book value growing by 15 percent year-on-year in these circumstances,” said Jefferies analyst Krishna Guha.

Fourth-quarter net profit at DBS, Southeast Asia’s biggest bank by assets, came in at S$913 million ($643 million), the lowest in two years, and below an average forecast of S$936 million from six analysts polled by Reuters.

DBS’ charges for bad loans during the quarter rose 87 percent to S$462 million.

Full-year net profit fell 2 percent, although CEO Piyush Gupta noted in an earnings statement that full-year profit had climbed 10 percent before provisions.

Earlier this week, OCBC reported an 18 percent drop in quarterly profit to a three-year low and warned of more pain in the oil and gas-related industry.

S&P Global Ratings said in a report on Wednesday it expects growth will remain flat for Singapore’s banks in 2017.

“Higher-than-expected provisioning costs represent the main downside risk to profitability,” said credit analyst Ivan Tan.

In a further sign of pain in the offshore services sector, Ezra Holdings Ltd (EZRA.SI) has warned it may have to take a $170 million writedown on a joint venture. This week it also said that a creditor of a business owned by the venture had filed a court application requesting that the JV’s subsidiary be wound up.

DBS’s net interest margin, a key gauge of profitability, fell 13 basis points to 1.71 percent as Singapore-dollar interest rates were lower compared to a year ago.

It expects mid-single digit growth in loan and income in 2017.

DBS’s shares climbed 0.8 percent in morning trade.

Reporting by Anshuman Daga; Editing by Edwina Gibbs

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