Here’s why the risky oil and gas sector is the least of Singapore banks’ headaches

Another sector is the banks’ biggest pressure point.

While the risk-laden oil and gas sector has been a constant source of headaches and non-performing loans for Singapore’s banks, analysts have reason to believe that another sector is shaping up to be the bane of the city-state’s financial institutions.

According to a report by Maybank Kim Eng, the support services sector is facing stress and arguably the biggest pressure point at this moment.

“Given the relatively large exposure of Singapore banks to them, we want to assess the impact on specific provisions, net profits and book values if NPL ratio for support services sector hits 20% and 30% respectively, ceteris paribus,” the report noted.

In fact, the report added that if bad loans from the support services sector hits 20% to 30% this year, banks’ non-performing loan ratio will increase to 1.3-1.6% and 1.6-1.7% respectively.

“It is difficult to estimate loan provisions with accuracy as these can be very dynamic and banks can have varying standards in their loan-loss methodologies. In addition, banks can always draw down on their general provisions to counter any shortfall,” the report added.