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.