Which local bank is most exposed to the struggling offshore and marine sector?

This sector is the new subprime.

Market watchers have been constantly raising the alarm over the three banks’ non-performing housing loans, but CIMB analysts argue that the market should also focus on banks’ significant exposure to the struggling offshore and marine sector.

According to CIMB, local banks classify loans to oil and gas companies under the “transportation, storage and communications” (TST) sector.

DBS has the largest quantum and percentage of TST loans, which make up 8.4% of its total loan book. This compares unfavorably with just 5.6% for OCBC and 4.6% for UOB.

CIMB notes that while TST loans also include loans to companies outside the oil & gas space, a closer look reveals that DBS is likely to be more exposed to the oil & gas sector than OCBC and UOB.

“Obviously, not all corporates are equally at risk in one sector. Our offshore & marine analysts did a deep dive into the oil and gas firms‟ debt servicing ability recently. To sum up their findings, they deemed Ezra and Swiber to be most at risk. Again, this does not bode well for DBS, which also seems to be the most frequent banker of choice in the sector and also the banker to these two names,” stated CIMB.

Here’s more from CIMB:

To determine the key banking (and presumably, lending) relationships of the eight Singapore oil & gas corporates under our coverage, we did two things 1) delve into annual reports for disclosure of principal banking relationships, and 2) examine each local bank‟s involvement in bond issuances.

By extension, we assume that investment banking relationships should also be a good gauge of lending relationships. We found that DBS was involved in the most number of deals, followed by OCBC and UOB.

By extension, we assume that DBS is also likely to be the biggest lender to these companies, closely reflecting the sectoral loan breakdown. We believe that DBS is most exposed to this segment.