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9 Key Things to Learn About Oversea-Chinese Banking Corp Limited’s Exposure to the Oil and Gas Industry  

The oil and gas industry in Singapore is in a funk.

In July this year, Swiber Holdings Limited (SGX: BGK), a services provider in the oil and gas industry, filed for liquidation, only to pull back a few days later and subsequently place itself under judicial management.

As one of Swiber’s lenders, Singapore’s largest bank DBS Group Holdings Ltd (SGX: D05) was dragged into the fray as well as. Concerns also arose on whether the Swiber incident could be a tipping point for the industry.

But what about the other banks in Singapore?

Oversea-Chinese Banking Corp Limited (SGX: O39), Singapore’s second largest bank by assets, addressed its exposure to the oil and gas industry in its recent 2016 second-quarter earnings presentation. Part of the focus was around the slide below:

2016-09-29-ocbc-oil-and-gas
Source: OCBC’s earnings presentation

Here are some of the key highlights I picked up from the bank’s maangement:

  1. Darren Tan, OCBC’s chief financial officer, started by providing some updated figures. He said that OCBC’s total exposure to the oil and gas industry was S$14.3 billion. Tan added that the on-balance sheet exposure for oil and gas amounted to 6% of total customer loans. For reference, the on-balance sheet exposure was S$12.6 billion.
  2. From the aforementioned on-balance sheet exposure, Tan said that 45% was from the offshore support services sector, the most impacted area. OCBC has classified 15% of this services sector as non-performing loans (NPL). This NPL accounted for 0.45% of total customer loans.
  3. Samuel Tsien, OCBC’s chief executive, also added his thoughts around the subject. He said that the oil and gas sector “continues to be under pressure.” Tsien said that the distress indicators the bank is looking at show that the problems have deepened but it has not broadened.
  4. To elaborate, Tsien said that OCBC has identified a set of customers that could face problems in payments since the third-quarter last year. These customers, which are still making on-time payments, were put on a watchlist or as a special-mention.
  5. If the aforementioned companies from this list are approached by their customers for some form of rescheduling or restructuring of contracts, OCBC will classify the loans from the companies as substandard. To push home his point, Tsien said that the customers added to the substandard list are from the original watchlist (deepened). There were “virtually no new” customers added (hence, not broadened).
  6. OCBC’s overall NPL was 1.1% at the end of June 2016. Tsien said that 0.45% (on an absolute basis) is from the oil and gas sector. He said that this figure was 0.43% in the prior quarter and 0.39% in the quarter before that.
  7. Tsien said that OCBC’s focus has been on helping its oil and gas customers deleverage. He feels that this is the best way to go as the movement of oil prices is beyond the control of its oil and gas customers. Deleveraging could come in the form of raising new funds from equity, selling assets, inviting new partners, or privatisation.
  8. The efforts with its customers are bearing fruit. Tsien mentioned that during the second-quarter of 2016, OCBC has been able to recover some of its special provisions made earlier. He cited an example where OCBC’s estimation for special provisions was “too much”.
  9. To conclude, Tsien said that OCBC’s position is to help its customers deleverage so that they can continue their operations – perhaps, he said, on a smaller scale. He added that no customer has abandoned operations to be handed over to the bank so far.

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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.