Will DBS Group Holdings Ltd Suffer With The Fall Of Swiber Holdings Limited?

Earlier this week, Swiber Holdings Limited (SGX: BGK), a services provider in the oil & gas industry, filed an application to wind its business up.

When a company collapses, there can be widespread effects. For instance, its stakeholders – such as employees, shareholders, customers, suppliers, and lenders – could all be affected gravely.

Swiber has been busy with borrowing money. According to its latest quarterly earnings report (for the three months ended 31 March 2016), the company has total liabilities of US$1.43 billion.

Southeast Asia’s largest bank, DBS Group Holdings Ltd (SGX: D05), happens to be one of Swiber’s lenders. The bank announced yesterday evening, after the trading session ended, that it has exposure to the Swiber group of companies.

According to the announcement, DBS has exposure of S$700 million to the fallen Swiber. This includes loans, bonds, and off-balance sheet items.

Unfortunately, the bank only expects to recover roughly half of the S$700 million from Swiber’s liquidation process. DBS added that it will “provide fully for the anticipated shortfall… [and] will tap on its surplus general allowances.” As such, the “net allowance charge will be lower, at about SGD150 million.”

But, this still raises the question: Is a loss of S$150 million a big deal for DBS?

According to the bank’s latest quarterly earnings report (for the three months ended 31 March 2016), it earned a net profit of S$1.2 billion. So in the grand scheme of things, the end-impact from its S$700 million exposure to Swiber seems small.

But, it is worth noting that DBS’s non-performing assets (NPAs) have been increasing. In the first-quarter of 2015, the bank only had NPAs of S$2.6 billion; this rose to S$2.8 billion at end-2015 and has since climbed to S$3.05 billion in the first-quarter of 2016.

In looking at current developments, NPAs for DBS Group Holdings might again be on the rise in the coming quarters. This unsettling trend, together with DBS’s recent involvement in the 1MDB scandal, are not welcome news.

A financial institution can only grow when it makes good loans and protects itself from loan losses. It also needs to protect its reputation in order to attract more borrowers and depositors.

Unfortunately, as we’ve seen, DBS appears to be struggling on both counts – making good loans and keeping its reputation solid – at the moment. The bank’s not in any deep existential crisis, but still, let’s hope it can turn things around.

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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 writer Stanley Lim doesn't own shares in any companies mentioned.