RETAIL BANKING | Staff Reporter, Singapore

Are Singapore banks' NPL woes from oil and gas companies finally over?

New NPL formation rates moderated in Q1.

The NPL ratios of the three banks remained flat in Q1 2017 from end-2016 levels.

According to Moody's Investors Service, this was driven by a moderation in new NPL formation rates in Q1 2017 primarily within the oil and gas services sector, which constitutes 2%-3% of the banks’ total loans.

Here's more from Moody's:

We see further moderation in asset risks emanating from the oil and gas services industry. We expect global oil prices to remain range bound at $40-60 a barrel through 2017-18. In this scenario, oil and gas services companies will continue to pose asset-quality challenges to banks over the next few quarters.

However, the industry has passed through its trough of 2016, and new non-performing asset (NPA) formations should normalize for companies in the oil and gas services industry.

We view further spillover for Singapore banks to be manageable even if oil market conditions deteriorate because many weak companies in the sector have either already defaulted or restructured their liabilities. Singapore's current slow economic growth will also pose business challenges for SME borrowers.

The quality of the three banks' remaining loan portfolios in various regional markets, including Greater China and other parts of Southeast Asia, was fairly stable in 1Q 2017.

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