Singapore’s largest bank, DBS Group Holdings Ltd (SGX: D05), has struggled with the oil and gas industry in 2016.
In the bank’s 2016 fourth quarter earnings briefing, its chief executive officer, Piyush Gupta, spent time explaining the current situation. His focus was around the slide below:
Source: DBS Group’s earnings presentation
Here are eight quick things to note:
1. DBS Group’s total exposure to the oil and gas industry is around $22 billion. Of this amount, $17 billion are from loans while the remaining $5 billion are considered non-loans.
2. The oil and gas industry exposure was broken out into two major portfolios. The first piece comprises producers, traders, and processors. For context, this portfolio made up $14 billion of the exposure.
3. Gupta spent most of his time around the second piece of the portfolio, which includes oil and gas support services providers. DBS Group has an exposure of $7 billion to this piece.
4. The $7 billion sum can be further broken down to another two buckets. The first bucket, which amounts to $1.8 billion, belongs to government-linked shipyards.
5. The second bucket – a $5.5 billion exposure – has two parts, one of which has five companies that collectively amount to a $2.6 billion exposure for DBS Group. The second part, which has about 90 companies, accounts for exposure of $2.9 billion.
6. For the $2.6 billion exposure, DBS Group has shifted two companies into the non-performing assets (NPA) category in 2016. One was shifted during the third quarter of 2016 while the other was shifted in the fourth quarter. The NPA for these two companies sums up to $800 million. Gupta said that the company that was shifted into the NPA category in the fourth quarter of 2016 was not unlike Swiber Holdings Limited (SGX: BGK) which filed for judicial management last year. Gupta added that provisions were also taken for the company in question.
7. Gupta said that the other three companies in the five-company group of the $2.6 billion exposure were not contractors like Swiber. Gupta said that the cash flow for the remaining three were a lot more transparent and he was relatively confident that the three should be okay.
8. For the $2.9 billion part of the exposure, Gupta said that half of the portfolio was weak in terms of value, adding that there are around 20 companies in this. Gupta added that three out of the 20 were taken as NPAs in the fourth quarter of 2016 – these amounted to an exposure of around $100 million. He also said that the 90 names in the $2.9 billion part of the exposure will continue to be stretched in 2017.
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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.