The risk that banks face within the oil and gas sector is currently “contained” but the outlook for the industry remains far from certain, according to the CEO of Singapore’s oldest bank.
OCBC’s Samuel Tsien said that rising oil and gas prices indicate a more optimistic picture for the market, but banks would likely remain cautious for the foreseeable future.
“The recovery is not yet very certain,” Tsien told CNBC on Wednesday. “I would describe the risks that the banks have in the oil and gas sector as now contained.”
The industry crossed a significant milestone late last year when oil traded above $60 per barrel for the first time since mid-2015.
However, Tsien said OCBC had yet to see the improved outlook translate into sufficient real activity in the industry, which influences a bank’s willingness to lend.
“The recovery is not yet very certain,” he continued, “which explains why, across the board, I think most of the banks have taken more provisions against their portfolio.”
“We know that this is probably it, but, on the other hand, we’re not certain when the recovery is going to come,” Tsien said.
OCBC announced in its full-year earnings report released Wednesday: “Given the prolonged uncertainty and the lack of firm visibility in the OSV (offshore support vessel) sector, the Group took a prudent stance to further downgrade its OSV exposures and made appropriate allowances.”
Despite that, the bank reported a net profit after tax of 4.15 billion Singapore dollars (about $3.17 billion) for the full calendar year 2017.