SINGAPORE -- With the release of the 2015 results of Singapore's three major banks expected over the next week, investors in the city-state were hit with more disappointing news as DBS Group Holdings lost its position as Southeast Asia's largest bank by value, taken over by Indonesia's Bank Central Asia.
According to Bloomberg data, BCA beat DBS in terms of market capitalization this month in U.S. dollar terms. As of Feb. 15, DBS's share price has declined around 19% to 13.41 Singapore dollars ($9.59) since the end of December, weighed down by mounting concerns over China's slowdown and declining oil prices. BCA shares, by contrast, have been relatively resilient, as the bank's domestic focus insulates it from slowing growth in China.
DBS is not the only bank suffering in the city-state. Shares in Singapore's second-largest lender Oversea-Chinese Banking Corp. have lost around 13% at S$7.64 since the end of 2015, while those of United Overseas Bank have declined around 9% to S$17.85.
According to Moody's Investors Service, Singapore banks are most exposed to mainland China within Asia-Pacific after Hong Kong, with China loans making up 5--17% of gross loans for the three major banks each. Greater China (excluding Hong Kong) accounted for 10% of DBS's total income for the first nine months of 2015, up from only 3% for the whole year of 2007.
Singaporean banks had steadily increased loans to Chinese enterprises. China-centric growth plans were visible in their M&A strategies: in 2014, OCBC acquired Hong Kong's Wing Hang Bank with hopes of expanding its business to clients in Hong Kong and mainland China.
Another concern for Singaporean banks is the ailing oil and gas industry. Last November, OCBC and UOB cited borrowers in the oil and gas sector as the main culprits for the rise in non-performing loans.
Although Singapore does not produce oil or gas, it is home to the world's largest rig builders, Sembcorp Marine, a subsidiary of Sembcorp Industries, and Keppel Corp. New rig orders have hit rock-bottom for the two companies as global oil and gas exploration activities have stalled.
The two rig builders also supply to ailing Sete Brasil, a Brazilian leasing company partly owned by state-owned oil major Petrobras which is under scrutiny for a massive corruption scandal. Keppel CEO Loh Chin Hua said in January that the company has set aside a S$230 million provision for projects ordered by the Brazilian company.
Sluggish performance by Singaporean companies is also weighing down banks' lending activities. Total bank lending in Singapore in December 2015 was down 1.2% from a year ago.
While analysts recognize that there is some uncertainty over Singapore banks' credit quality, most remain bullish on banking stocks. "Singapore banks are at the start of a multi-year challenging journey, with growth drivers fast disappearing and impairment charges only beginning to rise," said UBS in a Feb. 4 report on Singapore banks.
UBS cut the target prices for the three Singaporean banks but maintained "buy" rating. Nomura also gave all three major Singaporean banks "buy" ratings in a recent report, naming DBS the top pick and calling concerns over China and commodities "overdone."