Limited oil and gas exposure cuts Singapore banks' bad loans in Q1

New NPL formation eased for DBS by 63%, 24% for OCBC, and 1.9% for UOB.

The asset quality of Singapore banks improved markedly in Q1 as nonperforming loan ratios declined across the board, according to Moody’s Investors Service, amidst higher recognition of bad loans in the oil and gas segments.

New NPL have eased 63% yoy for DBS, 24% yoy for OCBC, and 1.9% yoy for UOB. The banks have also cleaned up by recognising more NPL during 2H17 due to the transition to SFRS (I) 9. Credit costs dropped to just 13.1bp for DBS, 2.0bp for OCBC, and 13.3bp for UOB, according to UOB Kay Hian.

The foreign NPLs of OCBC and UOB remained stable although DBS registered plunging delinquencies amidst larger recoveries and write-offs in the foreign book.

The credit rating agency attributes the improvement in asset quality to lowered residual risk in oil and gas exposures after the portfolio cleanup in the second half of 2017. If global oil prices remain elevated, the formation of new stressed assets from O&G sector will remain limited. 

“Healthy economic growth in Singapore and falling NPL ratios in other ASEAN economies are likely to continue to support asset performance,” the report noted.

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Total loss allowances clocked in at 90% of nonperforming assets amidst the adoption of new accounting standards requiring banks to provision for assets using an expected credit loss (ECL) approach.

“Over the next 12-18 months, we expect that coverage ratios will remain fairly stable on the back of benign credit conditions,” Moody’s added.