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United Overseas Bank Ltd Talks About Commodities and its Exposure to the Oil and Gas Sector

United Overseas Bank Ltd (SGX: U11), or UOB for short, had its second quarter earnings briefing recently.

UOB’s exposure to the troubled oil and gas sector were among the topics. Wee Ee Cheong, UOB’s Deputy Chairman and Chief Executive Officer, said this in his opening statement:

Since our meeting earlier this year, it has been a roller coaster ride for the global markets. Concerns over the oil and gas segment, China’s slowing economy and Brexit added further uncertainty.

Later on, Group Financial Officer Lee Wai Fai gave some context to UOB’s exposure to commodities and the oil and gas sector. His focus was around this slide:

2016-09-29-uob-oil-and-gas

Source: UOB’s earnings presentation

Lee gave a brief take UOB’s exposure to commodities and the oil and gas sector:

The total exposure to commodities was S$22.8 billion. The oil and gas segment totaled S$14 billion, with the majority to the downstream / trader segment which are less impacted by the decline in oil prices.

From the slide, we can see that the downstream / trader segment was S$9.1 billion, a significant piece of the S$14 billion figure. Lee continued:  

For the more vulnerable upstream segment of S$4.9 billion, we have reviewed our position and at present, we expect the total credit cost of 32 basis points (0.32%) for the year to be sufficient to cover emerging losses.

Earlier, Wee also expressed confidence in UOB’s financial standing:

Despite market volatility, our financial position and balance sheet remains strong. And this is reflected in our steady financial results in the first half year.

The oil majors like Keppel Corporation Limited (SGX: BN4) and SembCorp Marine Ltd (SGX: S61) expect oil prices to remain low for a prolonged period of time. Recovery could take a while, in their view.

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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.