Singapore 's top lender DBS Group (: DBSM_PCSS-SG) said Thursday that its fourth quarter 2016 net profit fell after it set aside 87 percent more money to cover bad loans coming mainly from the offshore support services companies, whose troubles are expected to persist through 2017.
The bank's net profit in the fourth quarter of 2016 fell nearly 9 percent from the year-earlier period to S$913 million ($644 million), the bank said in an earnings release before the Singapore market opens. It set aside S$462 million ($326 million) in provisions for the quarter, up from S$247 million ($174 million) a year ago.
After three consecutive days of decline, DBS shares opened 0.4 percent higher on Thursday morning. Its smaller rivals, Oversea-Chinese Banking Corp (Singapore Exchange: OCBC-SG) (OCBC) and United Overseas Bank (Singapore Exchange: UOBH-SG) (UOB), opened 0.1 percent higher and flat, respectively.
Echoing the sentiment of OCBC CEO Samuel Tsien , DBS CEO Piyush Gupta said in a news briefing that oil prices have to strengthen further to ease pressures on offshore oil and gas support services firms.
The beleaguered sector has hit the city state's banks over the past year, resulting in the lenders setting aside hundreds of millions in Singapore dollars for potential losses after clients struggle to pay their debt .
"Unfortunately, investments by the oil exploration companies are still not happening in a big way. I think oil prices have to stay circa $60 per barrel for a longer period of time or go up sharply before investments start coming in... It's quite likely to see more slippage into NPLs (non-performing loans)," Gupta said.
S&P Global Ratings said in a statement on Wednesday that weak domestic economic growth, global trade uncertainties and a slowing China are expected will add to the woes of Singapore banks.
"We believe Singapore is at the early stages of a downturn in the credit cycle, and things are likely to get worse in 2017 and 2018," said S&P Global Ratings credit analyst Ivan Tan.
In the quarter, DBS' net interest income fell 2 percent to S$1.82 billion ($1.3 billion) as the net interest margin fell 13 basis points to 1.71 percent. Non-interest income rose 19 percent to S$952 million ($671 million).
The non-performing loan rate climbed to 1.4 percent, up from 0.9 percent in the year-earlier quarter -- a significant part due to stresses in the oil and gas support services sector.
Full-year earnings came in at S$4.24 billion ($3 billion), falling 2 percent from a year earlier "as a stronger operating performance was offset by higher allowances." Excluding the allowances, profit rose 10 percent to S$6.52 billion ($4.6 billion).