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5 Key Facts About Oversea-Chinese Banking Corp Limited’s Exposure to Oil and Gas

Shares of one of Singapore’s major banks, Oversea-Chinese Banking Corp Limited (SGX: O39), have hit a rough patch lately.

After hitting a high of $10.92 last year, the bank’s share price has dwindled by nearly 17% to $9.09 as of yesterday. Worries around OCBC’s exposure to the struggling oil and gas industry could be one of the issues weighing on its shares.

These concerns were not lost on Samuel Tsien, OCBC’s chief executive. In a recent presentation for the bank’s 2015 fourth-quarter earnings, Tsien shared his thoughts on this subject. He made a reference to OCBC’s non-performing loan (NPL) ratio, which is shown in the slide below:

2016-03-17 OCBC NPL

Source: OCBC’s earnings presentation

Here’re five quick but important notes from the presentation:

  1. The NPL ratio at the end of December 2015 was 0.9%, up from 0.6% a year ago. Tsien said that 0.39% of the NPL ratio was from the bank’s oil and gas portfolio. The NPL related to its oil and gas portfolio was 0.39% of total customer loans. To illustrate how the situation has deteriorated, he said that the ratio for the oil and gas portfolio was only 0.01% a year ago.
  2. But, Tsien also said that the oil and gas portfolio represents just 6% of OCBC’s total customer loans. For context, OCBC registered $211 billion in customer loans at the end of 2015. The oil and gas loan portfolio amounted to $12.4 billion of the total of $211 billion. Tsien added that the percentage was unchanged from the previous quarter.
  3. OCBC’s chief executive also added that the bank is very comprehensive in its definition of  oil and gas-related companies. This would include oil and gas support services providers, companies that deal with vessels, rigs, tugs, and barges. Furthermore, OCBC also includes companies that deal with transportation equipment for oil and gas, oil traders, and oil commodity companies.
  4. From there, Tsien dove deeper into OCBC’s oil and gas exposure. Of the $12.4 billion in oil and gas loans, 47% came from offshore support service providers, the ones that handle things like vessels, rigs, and liftboats. This area was particularly stressed, which is not unlike what OCBC’s peer, DBS Group Holdings Ltd (SGX: D05), had also recently stated. From the 47% figure, OCBC has 14% classified as NPLs.
  5. Finally, Tsien added that the net new NPLs that occurred in the oil and gas sector over the past one year were from the offshore support services space.

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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.