Oil & gas stress to ease only when prices settle above $60: Singapore's OCBC chief

CNBC with Reuters
A man walks past an OCBC branch in the central business district of Singapore.
Nicky Loh | Bloomberg | Getty Images

Singapore's Oversea-Chinese Banking Corporation's chief on Tuesday said oil prices need to cross $60 per barrel to ease loan repayment pressures for oil and gas service firms that hit quarterly earnings.

Banking shares in Singapore fell after the bank known as OCBC released its earnings for the October-December quarter and full-year of 2016. OCBC's shares opened 3.2 percent lower, DBS Group Holdings fell 1 percent and United Overseas Bank (UOB) inched down 0.9 percent.

"(OCBC's earnings validated) market's concern of the woes within the oil and gas services sector. Bank shares are likely to take a hit in the day and the remaining of the trio, DBS and UOB, are expected to be weighed ahead of their reports later in the week," said Pan Jingyi, market strategist at IG.

OCBC, the second largest listed lender, and the first of the three Singapore banks to release earnings fort he past year, said net interest income fell 7 percent in the fourth quarter of 2016 to S$1.25 billion ($880 million) with net allowances for loans and other assets of S$305 million, a jump of 57 percent above S$193 million in the same quarter a year earlier.

Net profit after tax for the quarter declined 18 percent on-year to S$789 million.

For the full year, net profit was 11 percent lower at S$3.47 billion, while net interest income was down 3 percent on-year to S$5.05 billion.

DBS will report its fourth quarter earnings on Thursday, with UOB on Friday.

Struggles among oil and gas debtors have dominated the narrative of the Singapore banking sector over the past year. In the latest sign of a still-weak industry Ezra Holdings flagged earlier this month that it could possibly write down $170 million due to problems with one of its joint ventures, EMAS Chiyoda Subsea.

The three listed Singapore banks are Ezra's principal bankers.

"The stress situation is going to continue. We need to see oil above $60 per barrel on a sustainable basis to trigger the oil majors to go out and explore, and for the charterers to enter into longer term vessel chartering contracts," OCBC CEO Samuel Tsien told reporters after the earnings report was released.

"Before that happens, it's hard to say that it's the end of a difficult period for our clients," he added.

Global crude pries have stayed above $50 a barrel for the past two months as a coordinated pact between members of the Organization of the Petroleum Exporting Countries (OPEC) cartel and other major producers led by Russia have agreed to trim output by almost 1.8 million barrels per day for the first six months of the year.

We're moving into uncharted territory: OCBC

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