The Smart Investor
    Facebook Instagram
    Tuesday, January 31
    Facebook Instagram LinkedIn
    The Smart Investor
    • Home
    • About
      • About Us
      • Careers
    • Smart Investing
      • Getting Started
      • Investing Strategy
      • Smart Analysis
      • Smart Reads
    • Special Free Reports!
    • As Featured on BT
    • Our Services
      • Our Services
      • Subscribe now!
    • Login
    • Cart
    The Smart Investor
    Home»Blue Chips»Will Singapore Banks Face an Avalanche of Bad Loans?
    Blue Chips

    Will Singapore Banks Face an Avalanche of Bad Loans?

    Royston YangBy Royston YangApril 21, 2020Updated:July 8, 20204 Mins Read
    Facebook Twitter LinkedIn Email WhatsApp
    Share
    Facebook Twitter LinkedIn Email WhatsApp

    The closure of non-essential businesses has heaped financial stress on many companies. Some may end up as bad debts.

    With the COVID-19 pandemic still showing no signs of abating, the Singapore government has not let up on its “circuit breaker” measures to try to slow the spread of the virus.

    While these measures are currently slated to be lifted on 4 May, the government has warned that they may be extended, depending on how the situation evolves.

    The longer these measures are in place, the more the nation’s economy will suffer.

    As cash flows dwindle, businesses will have to start laying off staff, leading to massive job losses for the retail, food and beverage, tourism and hospitality industries.

    The situation begs the question of whether our local banks may suffer an avalanche of bad loans in the months to come.

    Negative impact on businesses

    Non-essential businesses that have been shut during this period earn zero revenue but still need to pay expenses for staff and rental.

    Though the Government’s recent three rounds of Budget announcements have helped to alleviate some of the financial pressure, it should be noted that these are just temporary measures to tide businesses over the next two to three months.

    Should the situation worsen, there could be a possibility of stricter measures being implemented. The current measures could even be extended indefinitely until the outbreak has been successfully contained.

    Exposure to Hin Leong Trading

    News recently reported that the three local banks, namely DBS Group Holdings Ltd (SGX: D05), United Overseas Bank Ltd (SGX: U11) and OCBC Limited (SGX: O39), are exposed to loans taken up by a top Singapore oil trading firm, Hin Leong Trading (HLT).

    According to the article, DBS has the highest loan exposure to HLT at US$290 million, while OCBC and UOB are owed US$220 million and US$100 million, respectively.

    The sharp plunge in oil prices, along with the COVID-19 pandemic, had brought one of Asia’s largest oil traders to its knees.

    To put things in perspective, as of 31 December 2019, DBS had a loan book of S$362.4 billion, OCBC’s loan book stood at S$264.8 billion, and UOB’s at S$268.7 billion.

    Hin Leong’s exposure works out to be around 0.11% of DBS’s loan book, 0.12% of OCBC’s and just 0.05% of UOB’s loans.

    The exposure, fortunately, is neither large nor significant.

    However, investors should be mindful of the risk of a domino effect from Hin Leong’s troubles impacting other firms within the same industry.

    Mortgage loan deferments

    The banks have also been busy in recent weeks dealing with other types of loans.

    Not only have the banks been granting moratoriums on corporate loans held by financially-strapped borrowers, but they have also been granting bridging loans to help many smaller businesses stay afloat.

    The Monetary Authority of Singapore (MAS) has implemented guidelines for mortgage loan deferment that kicked on 4 April.

    As a result, DBS has also received 8,000 requests to defer home mortgage loan repayments as of 14 April and has approved around 40% of them. OCBC has received 3,000 such requests, while UOB has received nearly 4,500 applications.

    Interest will continue to be charged on the principal amounts of these loans, but there will not be interest levied on the interest owed during this period.

    Get Smart: Bad news may continue trickling in

    From the corporate loan perspective, it seems the banks are starting to see some signs of bad loans popping up.

    The problems may start to worsen in the coming months as more businesses come under acute stress.

    For mortgage loans, the problem is contained for now as MAS has implemented measures to help tide borrowers over for now.

    We can get a clearer idea of how bad things may be when the banks start to release data and commentary for the first quarter of the fiscal year 2020.

    With share prices battered to multi-year lows, many attractive investment opportunities have emerged. In a special FREE report, we show you 3 stocks that we think will be suitable for our portfolio. Simply click here to scoop up your FREE copy… before the next stock market rally.

    Disclaimer: Royston Yang owns shares in DBS Group Holdings Ltd.

    Yahoo
    Share. Facebook Twitter LinkedIn Email WhatsApp

    Related Posts

    Merger and Acquisition

    What Makes Some Serial Acquirers So Successful

    January 30, 2023
    Data Centre (Sunlight)

    5 Key Takeaways from Mapletree Industrial Trust’s Latest Business Update

    January 30, 2023
    Screen Showing Share Prices

    Get Smart: Why You Shouldn’t Focus on Share Prices Alone

    January 29, 2023
    Facebook Instagram LinkedIn Telegram
    • Careers
    • Disclaimer & Privacy Policy
    • Subscription Terms of Service
    © 2023 The Smart Investor. All Rights Reserved. The Smart Investor, thesmartinvestor.com.sg, an investment education website managed by The Investing Hustle Pte Ltd (Company Reg No. 201933459Z) is not licensed or otherwise regulated by the Monetary Authority of Singapore, and in particular, is not licensed or regulated to carry on business in providing any financial advisory service. Accordingly, any information provided on this site is meant purely for informational and investor educational purposes and should not be relied upon as financial advice. No information is presented with the intention to induce any reader to buy, sell, or hold a particular investment product or class of investment products. Rather, the information is presented for the purpose and intentions of educating readers on matters relating to financial literacy and investor education. Accordingly, any statement of opinion on this site is wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader. The Smart Investor does not recommend any particular course of action in relation to any investment product or class of investment products. Readers are encouraged to exercise their own judgment and have regard to their own personal needs and circumstances before making any investment decision, and not rely on any statement of opinion that may be found on this site.

    Type above and press Enter to search. Press Esc to cancel.