Recent financial failures and scandals of Singapore's commodities traders, triggered by the oil price crash this year, highlight a lingering loan-loss risk facing major banks in the city-state.
At least four commodities traders in Singapore - Hin Leong Trading (Pte.) Ltd., Zenrock Commodities Trading Pte. Ltd., Hontop Energy (Singapore) Pte. Ltd. and Agritrade Interntional Pte. Ltd. - were put under receivership or judicial management by their creditors this year, according to company statements and media reports. The sudden and sharp decline in oil prices induced by the pandemic has hit their cashflows or uncovered allegedly fraudulent practices.DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. Ltd. and United Overseas Bank Ltd. were hurt by a slew of loan losses in 2015 when falling oil prices hit the offshore energy services sector. These banks may now face another round of rising loan losses if oil prices continue to be volatile or the global economy takes much longer to recover from the pandemic, analysts said.
The "banks have provided for a few specific cases and taken general provisions. If there are larger specific losses and a second wave of lockdowns or prolonged recovery, banks may need to provide more," Krishna Guha, an equity analyst with Jefferies.As of end-March, DBS' outstanding loans to the oil and gas industry stood at S$23 billion, or 6.1% of its total loan book, the bank told S&P Global Market Intelligence. Such exposure was higher than its smaller peers, with OCBC at 5% and UOB at 3.6%, according to the lenders.
"We believe that oil as a commodity will continue to be required going forward, but we need to be careful to make sure that during this period of time, we will be following the customers' development and their ability to withstand a low oil price," OCBC’s CEO Samuel Tsien said at the bank's post-earnings call on May 8. "We do not reduce our exposure per se simply because oil prices are coming down."Since the oil price crash, Singaporean banks have cut back on lending to the commodities sector, sources told S&P Global Platts earlier. Some brokers in the city-state also imposed risk limitations on accounts that are held by traders, the report said....
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