Exposure to retail, hospitality, tourism and, most notably, energy has led to increasing balance sheet pressures for banks in Asia.
At UOB, for example, some have projected credit costs to reach 100 basis points in the worst case scenario, tripling its guidance for a 25-30 basis point increase last month. A Citi report said conditions for the Singapore-based lender had «changed dramatically» since the post-result announcement in February and underlines a base case for 41 basis points, up from 16 basis points in 2019.
«The actual outcome will depend on a number of factors, including for example policy responses by governments, and banks' ability to proactively identify borrowers that need liquidity support,» said Robert Kong in a «Business Times» report.
UOB's current exposure to coronavirus-stricken sectors includes retail, hospitality and tourism which make up 6 percent of loans alongside consumer discretionary which makes up 3 percent. Kong estimated UOB’s net interest margin to drop from 2019’s 1.78 percent to 1.64 percent this year offset by 5 percent growth from loan and wealth management fees.
Bad Energy
Across the South and East China Sea, Japanese lender Mitsubishi UFJ took a direct hit to its balance sheet by selling a coal-linked loan at a reported 52 cents on the dollar. Year-to-date, coal prices have plunged around 25 percent.
According to a «Reuters» report citing three unnamed sources, the bank was selling the loan to meet the March 31 financial year-end deadline – a typical date for Japanese lenders to offload assets – but the transaction was nonetheless a «great buy» at such a price.
In contrast, Credit Suisse flagged success in an early mid-quarter note that attributed continued profit momentum and robust balance sheet in part due to lower exposure to the oil and gas sector – a market that is in the crossfires of a Russia-Saudi Arabia price war coupled with a coronavirus pandemic.
