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Oversea-Chinese Banking Corp Limited’s Exposure to Oil and Gas: 6 Key Highlights from its Latest Earnings

The oil and gas industry continues to be in a funk and one of Singapore’s largest banks, Oversea-Chinese Banking Corp Limited (SGX: O39), is not spared.

In July last year, Swiber Holdings Limited (SGX: BGK), a support services provider to the oil and gas industry, decided to file for judicial management. DBS Group Holdings Ltd (SGX: D05), as a major lender to Swiber, was dragged into the fray. Recently, another oil and gas support services provider, Ezra Holdings Limited (SGX: 5DN), filed for bankruptcy as its financials gave way under the heavy weight of debt.

There have been concerns among investors over whether the oil and gas troubles will claim more victims. OCBC addressed these concerns in its 2016 fourth quarter earnings presentation. The focus was on the slide below:

2017-03-27 OCBC Oil and Gas Slide
Source: OCBC’s earnings presentation

Here are six things to note that were shared by OCBC’s management:

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 sector was S$15.8 billion, up from S$14.1 billion in the previous quarter. Tan said that this was due to the appreciation of the US dollar against the Singapore dollar and growth in short-term loans to trading companies.

2. For context, the on-balance sheet exposure for the oil and gas sector amounted to 6% of OCBC’s total customer loans. The on-balance sheet exposure was S$13.4 billion.

3. The non-performing loans related to the oil and gas sector increased from S$1.1 billion in the previous quarter to S$1.3 billion in the fourth quarter of 2016. Tan reiterated OCBC’s stand that stresses in the industry has deepened, but not broadened. On this point, he said that the rise in NPL came from existing customers.

4. Tan added that 52% of the oil and gas sector’s NPL are still performing – that is, the companies are either paying up on the principal or interest or doing both.

5. Samuel Tsien, OCBC’s chief executive officer, also said that the bank had increased its special provisions from S$232 million in 2015 to S$484 million in 2016. Tsien said that 2016’s fourth quarter included a charge of S$235 million, which is mainly due to the oil and gas portfolio.

6. Tsien also mentioned that the oil and gas sector was responsible for an NPL portion of 0.6% of total customer loans. For context, OCBC’s overall NPL was 1.3% at the end of 2016, up from 0.9% at the end of 2015. Tsien pointed out that the non-oil and gas NPL portion had not changed between the third quarter and fourth quarter of 2016. To his point, the increase in NPL is mainly from the troubled oil and gas sector.

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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.