This comes after factoring the banks’ exposure to offshore marine group Ezra Holdings, post the announcement of its filing for US Chapter 11 bankruptcy with the US bankruptcy court in the Southern District of New York on Saturday.
Based on the recent filing, DBS holds the highest amount of total exposure at US$328 million ($459 million), followed by OCBC at US$279 million. UOB Bank is the least exposed to Ezra with a total exposure of US$33 million.
Nonetheless, all three banks’ exposures are slightly lower than what the research house has expected, notes analyst Jonathan Koh in a Monday report.
The restructuring imposed on Ezra over the past two years could have already withered down the banks’ exposures. We have previously expected DBS’ exposure at $500-600 million and for OCBC and UOB at $250-350 million, he explains.
Koh believes this is because DBS has already recognised Ezra as a non-performing loan (NPL) in 3Q16, such that the bank would have had the opportunity to set aside adequate provisions during the last two quarters of FY16.
He adds that the bank’s proportion of unsecured exposure to Ezra, however, was still 86% higher than expected at US$281 million of unsecured claims, while DBS’ management has guided for total provisions of $1 billion for 2017.
While Ezra could be rehabilitated and restructured, banks are likely to have assumed the worst when determining the appropriate level of provisions. We continue to expect provisions to be elevated in 1H17. However, provisions could ease slightly in 2H17 as most of the large and vulnerable exposures to the Oil & Gas (O&G) sector have already been recognized as NPLs, says Koh.
The research house is remaining overweight on Singapore’s banking sector.Ezra requested for a trading suspension this morning.
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