DBS' FY16 profits to be hit hard as Singaporean offshore company winds up

The bank declared a whopping $700m exposure.

DBS is looking at a gigantic gap in its FY16 earnings, as the bank announced a total exposure of $700m to the Swiber group comprising loans, bonds, and off-balance sheet items.

Swiber announced its winding-up application amid quarters of slowdown brought about by the crash in oil prices. According to an announcement by Swiber, the application has been fixed for hearing on 19 August 2016.

According to a report by OCBC, DBS expects to recover half of this sum as the exposure is partly secured.

DBS stated that it will provide fully for the anticipated shortfall, and that it will use surplus general allowances and the net allowance charge will be lower at about $150m.

OCBC notes that as an indication, allowances amounted to about $170m-$247m per quarter in the previous three quarters, and with the additional charge, DBS’ FY16 earnings will be taking a hit.

“We were previously projecting FY16 allowances of S$775m and this now looks set to touch almost S$1b this year. As a recap, the last time allowances were at this elevated level (>S$1b) was during the Global Financial Crisis in FY09 at S$1.55b. The stock has already taken a hit, falling 38 cents to S$15.88 yesterday, or wiping out close to S$958m of DBS’ market capitalization,” OCBC asserts.

“With the current market concern about the banking sector’s deteriorating outlook, largely due to exposure to several slowing sectors (oil and gas, commodity, property) and markets (Asia, China and Europe), this is likely to result in near term price weakness for banking stocks,” it adds.