The woes of Singaporean energy-services provider Ezra Holdings Ltd. are a stark reminder to the city’s biggest banks of the threat souring oil and gas loans pose to their earnings.

A writedown flagged by Ezra recently has refocused attention on the debt-repayment problems marine-services firms are facing, fueling concerns that lenders may have to set aside more money to cover loan losses. Fourth-quarter results due this week from DBS Group Holdings Ltd. and its two biggest rivals may include a 44 percent surge in combined provisions for the period from a year earlier, according to RHB Capital Bhd.

“At the end of the day, it’s the issue of provisioning that will weigh down on profitability,” said Leng Seng Choon, an RHB analyst in Singapore.

Oversea-Chinese Banking Corp. publishes its earnings on Feb. 14, the first of the big banks to do so. DBS, the city’s largest lender, reports on Feb. 16, followed by United Overseas Bank Ltd. a day later.

Charges for energy loans have colored the results reported by the banks over the past year, adding to pressure from a weakening domestic economy and slower lending growth. Reduced demand for oil and gas services has led at least four companies into default, the highest profile of which was Swiber Holdings Ltd., which sought court protection in July.

In the latest sign of the industry’s struggles, Ezra on Feb 3. flagged that it faces a $170 million writedown on a joint venture, as it negotiates -- along with a host of its peers in marine services -- for more lenient repayment terms with banks and creditors. The firm and its related companies owe S$1.1 billion ($774 million) to the three banks, CIMB Group Holdings Bhd. said in a Feb. 2 report, citing its own estimates.

None of the banks have revealed publicly their exposures to Ezra or whether they have set aside any funds to cover loans to the company. It’s possible they may have already done so because Ezra’s financial difficulties are well known, Standard & Poor’s analyst Ivan Tan said by phone on Feb. 6.

DBS more than doubled its loan provisions in the September quarter from a year earlier, leaving its profit for the period little changed. The bank grew its buffers at a similar pace in the previous quarter to cover its exposure to Swiber.

Representatives from DBS and UOB declined to comment.

For OCBC, stress tests since the third quarter of 2015 allowed the bank to identify customers that could be impacted, enabling it in turn to restructure some loans and make provisions “for the potential further deterioration” in oil and gas, spokeswoman Koh Ching Ching said in an e-mail. She couldn’t share details of specific loans, citing banking secrecy restrictions.

To cover potential losses related to Ezra and other energy-services firms, the banks may report combined loan provisions for the December quarter of S$910 million, according to estimates from RHB Capital.

Source:
courtesy of BLOOMBERG

by Chanyaporn Chanjaroen

If you have any stories or news that you would like to share with the global online community, please feel free to share it with us by contacting us directly at [email protected]