DBS Group Holdings, Singapore's biggest lender, on Monday reported a 6 per cent drop in quarterly profit due partly to a jump in provisions for oil services firm Swiber, and flagged large exposure to the struggling oil and gas sector.
Provisions for non-performing loans more than doubled, led by a charge of S$150 million ($111 million) for Swiber, which has been placed under judicial management. DBS said its total exposure to Swiber was S$721 million, revised from S$700 million announced previously.
Banking sources and analysts have warned that credit woes in the oil and gas services sector - a key industry for Singapore - are widespread following the rout in oil prices, spelling more headaches for lenders.
DBS's S$23 billion exposure to oil and gas companies excluding Swiber was bigger than rival United Overseas Bank's S$14 billion and Oversea-Chinese Banking Corp's S$14.3 billion.
"We have seen the oil and gas sector as a problematic sector since the beginning of the year," said Gene Fang, senior analyst at Moody's Investors Service, speaking ahead of the earnings.
"Our view is that there certainly is going to be some levels of defaults." DBS's net profit came in at S$1.05 billion in the three months ended June, versus a S$1.12 billion profit a year earlier.
This was line with an average forecast of S$1.05 billion from six analysts polled by Reuters. The poll was taken before DBS disclosed its exposure to Swiber.
DBS shares edged up 0.4 per cent in early trade, but were still down 11 per cent since the start of the year, underperforming the benchmark Singapore index.
DBS CEO Piyush Gupta said the bank's Greater China business was stabilising and the lender still had a healthy loan pipeline. "While there remains some uncertainty in the second half, our business momentum is good and our balance sheet healthy," he said in a statement on Monday.
DBS' net interest income rose 5 per cent to S$1.83 billion, while net interest margin improved 12 basis points to 1.87 per cent.
Loans were up 2 per cent, while fee income rose 8 per cent, led by growth in investment banking, transaction banking and loan-related activities.
United Overseas Bank and Oversea-Chinese Banking Corp , have also flagged concerns about loans to the oil and gas services sector - a key industry in Singapore.