25% of DBS SME clients still deferring repayments on loans amounting to $1 billion

SINGAPORE – A quarter of DBS Bank’s small and medium-sized enterprise (SME) clients in Singapore have temporarily opted to postpone repayments on loans amounting to about $1 billion in all.

But the good news is that companies that emerged from this situation – known as forbearance – have low delinquencies, or in other words, have serviced their loans, noted DBS chief executive Piyush Gupta.

He told a briefing on Wednesday (Feb 10): “Of the ones that have come out of forbearance, that’s where we have to look at. Once forbearance ends, are they still servicing (the loans) or are they beginning to deteriorate? If they are beginning to deteriorate, we have to start providing for those loans.”

Firms in the sectors hard hit by Covid-19 – such as aviation, tourism and land transport – have been allowed to defer 80 per cent of principal payments on loans granted by banks or finance companies until June 30. Others can defer payment until March 31.

Mr Gupta said 10 per cent of housing loans made by DBS are in forbearance as customers who have opted for deferment are still struggling with cash flow.

“Overall, the extensions are being contained and delinquencies have come down sharply. Our capacity to collect has improved as the economy recovers,” he added.

The bank expects total allowances for 2020 to 2021 to come in at the middle of a $3 to $5 billion range.

DBS Group reported a 33 per cent plunge in fourth-quarter earnings to $1.01 billion as the bank’s net interest margins fell and it had set aside higher allowances for potential bad loans amid the Covid-19 pandemic.

Total allowances at $577 million were almost five times higher than the year before.

Chief financial officer Chng Sok Hui said the bank has made ample provisions for bad loans in relation to DBS’s recent amalgamation with troubled Indian bank Lakshmi Vilas Bank (LVB).

The fourth-quarter results included amalgamation expenses of $33 million and general allowances of $87 million for LVB, which was amalgamated in November with provisional goodwill of $153 million.

LVB had gross non-performing assets of $881 million and specific provisions amounting to 76 per cent of these assets have been set aside.

“Asset quality was dealt with decisively as general allowances of $183 million were conservatively set aside, amounting to 9.5 per cent of LVB’s performing loans,” said Mrs Chng, who added that the impact on group capital was minimal.

DBS expects LVB to be profitable within 12 to 24 months.

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Mr Eugene Tarzimanov, vice-president and senior credit officer at Moody’s Investors Service, said: “DBS wrapped up a turbulent 2020 with a very strong balance sheet, supported by good asset quality, high capital and excess liquidity.

“We expect credit costs to decrease in 2021 as DBS has already completed the bulk of provisioning, with asset risks receding and economic conditions improving.”

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