5 Key Things About DBS Group Holdings Ltd’s Exposure to Oil and Gas

Shares of Asian banking giant DBS Group Holdings Ltd (SGX: D05) seem to have hit a rough patch lately.

To the point, after hitting a high of $21.50 last year, the bank’s share price has dwindled by nearly 30% to $15.38 as of yesterday. Worries around DBS Group’s exposure to the struggling oil and gas industry appear to be one of the issues weighing on its shares.

The concerns over DBS Group’s oil and gas-related banking businesses were not lost on Piyush Gupta, the bank’s chief executive. In a recent briefing for DBS Group’s 2015 fourth-quarter earnings, Gupta had spent some time explaining the current situation. His focus was around the following slide:

2016-03-11 DBS Group Oi and Gas Presentation
Source: DBS Group’s earnings presentation

Here’re five quick but important things to note from the earnings briefing:

  1. DBS Group’s total exposure to the oil and gas industry is around $22 billion. Of this amount, $17 billion are from loans while the remaining $5 billion are considered non-loans. For perspective, total customer loans and total shareholder’s equity at DBS Group was $283 billion and $40 billion, respectively, as of 31 December 2015.
  2. DBS Group’s exposure to the oil and gas industry can be broken out into two major portions. The first piece is from the producers, traders, and processors, which made up $13 billion of the total oil and gas exposure. Gupta said the exposure here was mainly from dominant state owned players in the oil and gas space. He also said that there were no non-performing loans (NPLs) and that the bank is not seeing any stress in this portfolio. To be sure, DBS Group reported an NPL ratio of 0.9% in 2015, unchanged from 2014.
  3. The picture is not as good in the second portfolio which is made up of oil and gas support services providers. This portion had an exposure of $9 billion. According to Gupta, this portfolio consists of about a dozen players from the offshore and marine sector, with the average exposure at around $500 million to $600 million per company. The NPL ratio was 1.3% here, but Gupta also said that the exposure is 80% secured with assets with a loan-to-value (LTV) in the region of 50% to 60% of the assets’ latest appraised values.
  4. Speaking of secured assets, Gupta cited an example of a recent liquidation of collateral that DBS Group had to make in December. The bank was able to recover the full value of its loans. Gupta said that this gave some assurance that the appraised values were indeed realizable.
  5. Gupta also said that the overall portfolio was stress tested at an oil price of US$20 per barrel, and the result was that only a handful of names from the aforementioned 10-12 companies in the oil and gas support services sector might get into trouble. Based on this, DBS Group does not foresee any additional special provisions that it would have to make in 2016. Moreover, Gupta added that if the US$20 per barrel of oil scenario were to drag on until 2018, the bank felt that the related special provisions is unlikely to go beyond $200 million.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.