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Trouble Building in Singapore
Feb 19, 2017 3:00 PM EST
Investors bemoaning Singapore banks' fraught relationship with oil-services companies may be overlooking another brewing area of trouble -- building and construction firms.
Property developers in the city-state seem fine but their contractors are hurting after almost five years of real-estate curbs. Suppliers are getting worried. Some 60 percent of respondents to a survey by global credit insurance group Atradius said they expected customers to become less timely about payments this year. Average days payable outstanding, a measure of how long a company takes to reimburse its suppliers, has risen to 104 from six two years ago, based on data from 16 publicly traded firms in the industry tracked by Bloomberg.
According to Atradius, the situation could get worse. It's expected that insolvencies in the construction sector will increase by about 5 percent in 2017, with firms working on private projects the most vulnerable.
Banks in Singapore aren't ignorant of this fact. In the quarter ended Sept. 30, 2014, DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. reported a combined S$779 million ($550 million) of bad loans from the industry.
Things have stabilized a little. At the end of December, the three lenders had a combined S$685 million of soured construction debt. But total reported exposure to the industry stands at about S$146.4 billion, so if business failures start to occur, the situation could get ugly quick.
Investors should get a sense of how much bigger the problem could become on Monday evening, when Singapore's annual budget is unveiled. If property curbs are eased or if stimulus packages for builders are announced, lenders can breathe a sigh of relief.
If neither materializes, oil, gas and shipping won't be the only industries giving bank shareholders grief.
Feb 19, 2017 3:00 PM EST
Investors bemoaning Singapore banks' fraught relationship with oil-services companies may be overlooking another brewing area of trouble -- building and construction firms.
Property developers in the city-state seem fine but their contractors are hurting after almost five years of real-estate curbs. Suppliers are getting worried. Some 60 percent of respondents to a survey by global credit insurance group Atradius said they expected customers to become less timely about payments this year. Average days payable outstanding, a measure of how long a company takes to reimburse its suppliers, has risen to 104 from six two years ago, based on data from 16 publicly traded firms in the industry tracked by Bloomberg.
According to Atradius, the situation could get worse. It's expected that insolvencies in the construction sector will increase by about 5 percent in 2017, with firms working on private projects the most vulnerable.
Banks in Singapore aren't ignorant of this fact. In the quarter ended Sept. 30, 2014, DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd. reported a combined S$779 million ($550 million) of bad loans from the industry.
Things have stabilized a little. At the end of December, the three lenders had a combined S$685 million of soured construction debt. But total reported exposure to the industry stands at about S$146.4 billion, so if business failures start to occur, the situation could get ugly quick.
Investors should get a sense of how much bigger the problem could become on Monday evening, when Singapore's annual budget is unveiled. If property curbs are eased or if stimulus packages for builders are announced, lenders can breathe a sigh of relief.
If neither materializes, oil, gas and shipping won't be the only industries giving bank shareholders grief.
