Singapore sets aside $1.2b for Asian loans
Singapore sets aside $1.2b for Asian loans
SINGAPORE (Reuters): Singapore banks' provisions for regional
exposure in 1997 are larger than expected, but the aggressive
move bodes well for the industry, banking analysts and economists
said yesterday.
Deputy Prime Minister Lee Hsien Loong told parliament the six
major banking groups would set aside S$2 billion (US$1.2 billion)
for regional provisions.
Lee, also chairman of the Monetary Authority of Singapore
(MAS), the country's de-facto central bank, said bank profits
would decline by about 30 percent in 1997.
"The local banks, in consultation with the MAS, set aside
substantial provisions to cater to the potential risks arising
from their exposure to the regional economies," he said.
The six major banks are DBS Bank, Keppel Bank, Oversea-Chinese
Banking Corp, Overseas Union Bank, Tat Lee Bank and United
Overseas Bank.
Analysts said they were surprised by how much provisioning was
required.
"We were going for high provisions, but not this magnitude,"
said Lim Beng Eu, banking analyst with Vickers Ballas.
Lee said the total classified loans of the six banking groups
to Malaysia, Indonesia, Thailand, South Korea and the
Philippines, amounted to 5.7 percent of their loans to these
countries.
Lim said he felt the banks had over-provided, effectively
writing off all the non-performing loans in the five countries,
but that the conservative move could be prudent.
"It could be viewed positively because banks bit the bullet by
making these provisions," he said.
Other experts agreed the provisions were precautionary and
encouraged by the authorities.
"It looks like Lee is accelerating the process of getting the
banks to clean up their balance sheets," said John Doyle, banking
analyst at UBS Securities.
"I had expected provisions to peak in 1998. But now it looks
like they will quadraple in 1997 and we might even see a slight
decline in 1998," he said.
Analysts said banks often try to smooth out their earnings --
in boom years, some profit is usually put into hidden reserves
and in bad years they are taken out again to pad earnings.
Said one banking analyst with a British securities firm, who
declined to be named: "It looks like Lee wants the banks to take
the hit in 1997 and fully provide for their exposure."
Analysts said the key issue now was whether 1998 would be a
better year, since the regional crisis was still unfolding.
"What is going to happen this year is still anybody's guess.
The local banks' exposure to Malaysia is much larger than
Indonesia and we are just not sure what is going to happen in
Malaysia," the analyst with the British firm said.
"The currency crisis started mid-last year. Looking ahead, I
think it will be bad, but not as bad as 30 percent," said Lee
Yeong Seng of Nikko Research. He said the smaller banks had
probably suffered the larger losses.
Analysts said most bank stocks had fallen by more than 30
percent since the onset of the regional financial crisis in July.
They said the downturn in bank profits and exposure to bad
loans were probably already reflected in the share price, but
they could fall another 10 percent as investors absorb the news.