DBS Bank closed off the second-quarter results session for Singapore banks with a more muted assessment of its oil and gas (O&G) portfolio, joining its peer OCBC Bank in signalling that the sector is still stinging from low oil prices.

“While contracts are picking up, the oil-and-gas service players don’t have any pricing power,” DBS chief executive officer Piyush Gupta told reporters at the bank’s results briefing on Friday. The rates today are barely able to cover operating expenses for such players, he added.

Even as there are efforts by support service players to repurpose vessels, such work not only requires some capital expenditure, but also creates repurposed vessels that again do not command higher rates.

Mr Gupta warned of bigger specific allowances than expected, given the continued stress in the O&G segment.

In the first quarter of 2017, DBS had guided for specific provisions at S$1.1 billion (excluding Swiber Holdings) for the full year, and Mr Gupta now said this could edge out of that estimate.

Similarly, OCBC’s chief executive officer Samuel Tsien said the industry was not in the midst of recovery yet.

“We need the oil-and-gas sector to actually improve before the whole situation can be classified as recovering and I don’t think we are at this stage yet,” said Mr Tsien, referring to oil prices which he said need to be seen at a sustainable higher level than at current levels.

Oil is still trading below US$50 per barrel. Singapore banks have said oil prices have to head to as much as US$70 per barrel before offshore support vessel operators can make a decent margin.

Bank stocks closed lower on Friday. Shares of DBS were down 59 Singapore cents to S$21.49, shares of OCBC fell 11 Singapore cents to S$11.21, and those of UOB fell 28 Singapore cents to S$24.03.

For S&P analyst Ivan Tan, the “lingering problems” in the O&G sector that would lead to higher provisioning still pose a threat to profit growth in the months ahead.

“Profitability is reasonably good but profit growth might face some challenges. Interest margins remain compressed and the Fed rate hikes have not translated into higher Sibors (Singapore Interbank Offered Rates),” said Mr Tan. “The Singapore banks performed well in Q2 considering the subdued economy. Sound capitalisation and strong liquidity ratios continue to underpin their financial profiles.”

DBS’s net profit rose 8 per cent from a year ago to S$1.14 billion for its second quarter, narrowly missing estimates from analysts. By comparison, both OCBC and UOB beat analyst estimates.

UOB reported a 5.5 per cent increase in net earnings for the second quarter to S$845 million. OCBC reported a stronger-than-expected net profit of S$1.08 billion for the same three-month period, up 22 per cent from a year ago.

The three banks are seeing some loan gains from the property segment, be it through residential property purchases in Singapore or, as in the case of OCBC, in the acquisition of real estate in the commercial and hospitality sectors in London, Sydney and New York by its customers.

On Singapore’s residential market, UOB’s chief Wee Ee Cheong said that there are signs that the Singapore market is bottoming out. But while sentiment has improved and sales have picked up, it was too early to say if the recovery was sustainable as that would depend on the fundamentals of the economy, he said.

DBS’s Mr Gupta sees a very clear pick-up in housing activity. This comes as the bank’s new bookings in mortgages in the second quarter are at their highest in five years. DBS has a share of 28.7 per cent in the housing loan market as at June 2017.

DBS sees some momentum in loan growth going into the second half of the year. OCBC and UOB are keeping their full-year loan growth forecast unchanged in single digits.

News Source: Link

Takayuki Nogami, a chief economist of the Japan Oil, Gas and Metals National Corporation, spoke about the current crude oil market with The Yomiuri Shimbun. The following are excerpts from the interview.

The Yomiuri Shimbun: How is the November agreement between OPEC and non-OPEC countries including Russia to be interpreted?

Nogami: OPEC, led by Saudi Arabia, and non-OPEC oil-producers such as Russia have agreed to extend the current cut in oil output for nine months. I believe that OPEC has successfully projected the image of itself in the market as an actor that can effectively play a role in pursuing the rebalance between supply and demand.

A: Some forecasters predicted that the oil output cut would not be extended for more than six months because countries such as Russia are against extending it too much. However, there were fears that investors would lose confidence in OPEC and prices would plummet if the extension was limited to six months.

The output cut is set to continue until the end of 2018, and global supply and demand are expected to reach an approximate equilibrium with an annual supply of around 30 billion barrels.

Inflows of funds into the market

Q: How are we to understand the effects this will have on the crude oil market?

A: Although the latest extension did not come as a surprise, crude oil prices have become increasingly buoyant.

High global stock prices are believed to have boosted asset values for investors such as hedge funds, making it easier for them to take risks and leading to inflows of funds into the crude oil market. This year’s crude oil prices may rise to around $60-$70 per barrel.

One of the factors behind this upward trend is heightened geopolitical risk. There are concerns that the administration of U.S. President Donald Trump will escalate tensions with Iran and reimpose sanctions that could cut off crude oil flows. Likewise, if tensions between Saudi Arabia and Iran escalate, that may also affect the supply of crude oil.

Another factor behind the rise in prices is the devastating hurricanes along the U.S. Gulf Coast that shut down refineries and reduced stockpiles of fuels such as gasoline and diesel.

Competition with shale oil

Q: How are OPEC’s presence in the crude oil market and the recent trends in shale oil being interpreted?

A: It can’t be said that OPEC has strengthened its position in the market, as it is competing with U.S. shale oil.

In the 2010s, shale oil production went into full swing, limiting OPEC’s pricing power. Although the United States is one of the world’s leading crude oil producers, it is not a member of OPEC.

If prices rise to the lower $50 a barrel range, the number of profitable well sites will grow, causing shale oil production to accelerate. A forecast made in 2011 by the International Energy Agency suggested that U.S. shale oil production will peak around 2020 at around 1.4 million barrels a day and then gradually decline. However, current output is at nearly 5 million barrels a day. It is even possible that continued growth in output will lead to OPEC’s controls becoming ineffective and result in prices falling to the $40 level a barrel.

Nevertheless, it has only been about five years since shale oil production went into full swing, and the extent of reserves, how far production costs can be lowered, and when it will peak are still unknown.

Although output has grown considerably faster than forecasts, there is also the possibility that the oil will be more and more difficult to extract in the future. In the 1980s, crude oil production in areas such as Alaska and the North Sea increased and it was believed that this increase would continue over the long-term. Yet despite expectations, it declined. Likewise, there is the possibility of shale oil becoming increasingly difficult and costly to extract. Can these challenges be overcome through technological innovation?

As shale oil development trends are rather uncertain, it is possible that the upward trend in crude oil prices will continue.

Prep for $100 per barrel needed

Q: What will become of global crude oil supply and demand in the mid- to long-term?

A: In the mid- to long-term, crude oil prices will likely fluctuate within the $30-$100 per barrel range. If prices surpass $100 per barrel, countries throughout the world will make rapid progress on energy-saving initiatives and shift away from oil dependence. On the other hand, if prices fall below $30 per barrel, high-cost oil extraction will become unprofitable in countries such as Canada, and production will grind to a halt.

Global demand for crude oil is likely to grow for at least the next 10 years. This is because economic growth in emerging economies including China and India will spur demand in sectors such as transportation and chemicals. Although some believe that the demand for oil will decrease due to the spread of electric vehicles, it will take a considerable amount of time to be fully implemented. One of the major challenges is the high costs of setting up necessary infrastructure such as charging stations.

On the supply side, OPEC leader Saudi Arabia is attempting to diversify its economy by cultivating industries including logistics, telecommunications and manufacturing. However, Riyadh has not stated that it would reduce crude oil production.

Q: How should Japan respond?

A: Japan needs to prepare for situations in which crude oil prices possibly rise to a level approaching $100 per barrel.

Crude oil prices have a limited adverse effect on the economy as long as they stay below $70 per barrel. The average price of regular gasoline is currently just over ¥140 per liter, but things will become considerably more difficult if the price were to increase to ¥150 or ¥160.

Japan should work on diversifying supply sources as well as developing and implementing energy-saving technologies and measures with countries such as China and India.

Although Japan has emergency reserves to last about 220 days, many emerging Asian economies don’t have enough stockpiles. It is also important to support the setup and maintenance of the necessary facilities. I believe that oil importers have an international responsibility to properly prepare for future risks.

Takayuki Nogami

Chief Economist of

the Japan Oil, Gas and Metals

National Corporation

Graduated from Waseda University’s School of Political Science and Economics, and earned a master’s degree at a graduate school belonging to the French Institute of Petroleum. After working at the International Energy Agency and various other companies and agencies, he took up his current position in 2015.

News source: Link

BEIJING (Reuters) – China will step up oversight in the banking sector this year to reduce financial risks, the country’s banking regulator said, stressing that long-term efforts would be needed to control banking sector chaos.

The China Banking Regulatory Commission (CBRC) said late on Saturday (Jan 13) in a statement that its priorities included increasing supervision over shadow banking and interbank activities.

“Banking shareholder management, corporate governance and risk control mechanisms are still relatively weak, and root causes creating market chaos have not fundamentally changed,”the CBRC said.

“Bringing the banking sector under control will be long-term, arduous, and complex,” it said.

The regulator said violations in corporate governance, property loans, and disposal of non-performing assets will be punished more strictly, and that it would strengthen risk control in interbank activities, financial products and off-balance sheet business.

China has repeatedly vowed to clean up disorder in its banking system.

In recent months, regulators have introduced a series of new measures aimed at controlling risk and leverage in the financial system, with everything from lending practices to shadow banking under the microscope.

Already in January, the CBRC has published regulations that put limits on the number of commercial banks that single investors can have major holdings in.

President Xi Jinping has declared that financial security is vital to national security.

The government is particularly concerned about the massive shadow banking industry, lending conducted outside of the regulated formal banking system.

It fears that a big default or series of loan losses could cascade through the world’s second-biggest economy, leading to a sudden halt in bank lending.

News source: Link

As U.S. banks prepare to announce their fourth quarter results in the coming week, an unwanted spectre is waiting in the wings: job cuts. They may make their entrance towards the end of the second quarter.

Nomura has become the first bank to articulate the possibility of cuts to come. In an interview with theFinancial Times, Koji Nagai, Nomura’s president, said the bank is contemplating completely restructuring its research operations in the U.S. in response to the impact of MiFID II in Europe.

Nagai even spells out the implications of the proposed “restructuring.” – “We already stopped providing research services in Europe. Probably there is no advantage in providing the service in the U.S.,” he tells the FT.

It’s not clear how many researchers Nomura employs in the U.S., but they cover a total of 200 companies, suggesting the team is not insignificant. Nor is it clear when the cuts will start – but sometime before Nomura pays its bonuses in May seems likely. A research director at another “leading bank” told the FT that he too is planning cuts, but that they will not come until  later in the year, when the bank better understands how investors’ behaviour will change under MiFID.

The clear danger is that Nomura will not be the only bank making global cuts to research – and that the cuts will spread beyond research to sales and sales trading, which also stand to be affected by the new rules. 2018 could yet turn out to be a painful year for equities businesses.

Separately, you may want to avert your eyes from the crypto-maniacs claiming to make millions. TheNew York Times has poked around in the crypto scene and found inordinately rich 26 year-olds who say things like, ““It’s the entire world reorganizing itself…We could get rid of our armies because for the first time you’ll have people saying, ‘I want to vote for a global order.’ It’s the internet waking up — it’s the internet grabbing its pitchfork. That’s the blockchain.” There’s also somewhere called Crypto Castle, which houses eight crypto people who eat Cheez-Its and Nutella, and which has a ‘stripper pole’ in one of the rooms. Revolutionary.

Meanwhile:

John Cryan says Deutsche Bank will only create “several hundred” jobs in the EU outside London to begin with. “The 4,000 number that comes up again and again is much too high.” (The Times)

Like J.P. Morgan, Goldman Sachs took a loss related to Steinhoff Holdings in the fourth quarter. (Fin24) 

How trading jobs lost their shine. “I think you can expect another slow year in 2018.”  (New York Times) 

Henderson fund managers: “We both have economics backgrounds, which have been completely useless for analysing the world.” (Telegraph) 

Tim Cook: “You have to find the intersection of doing something you’re passionate about and at the same time something that is in the service of other people,” Cook said, adding that “if you don’t find that intersection, you’re not going to be very happy in life.” (Fortune) 

Ray Dalio: ““We’re headed for a world where you’re either going to be able to write algorithms and speak that language or be replaced by algorithms.” (Financial Times) 

News Source: link

Authorities expect oil production to go from the current 10 million barrels a day to 11.03 million barrels in 2023

Saudi Arabia expects oil revenue to jump about 80 percent by 2023 to help the kingdom record its first budget surplus in a decade, according to people with knowledge of the matter.

Under a six-year program to balance the budget, officials predict rising oil prices and output will push income from oil sales to 801.4 billion riyals ($214 billion) from 440 billion riyals this year, the people said on condition of anonymity because they aren’t authorized to share the data publicly. It assumes the price of oil will reach $75 a barrel. Non-oil revenue, excluding income from the Public Investment Fund, would increase 32 percent to 337 billion riyals, they said.

While Crown Prince Mohammed bin Salman’s plan to transform the economy aims to reduce its reliance on oil in the long term, higher crude prices are central to efforts to support growth while introducing measures that would help boost revenue from other sources. The kingdom has led a drive among major non-OPEC members to stabilize oil markets through production cuts that have helped Brent crude prices exceed $60 a barrel.

The oil revenue forecast “looks challenging given the development in the shale industry,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. “The strong oil revenue growth in 2017 will be difficult to repeat.”

Authorities expect oil production to increase from an average of 10 million barrels a day this year to 11.03 million barrels in 2023. For 2020, they predict output of 10.45 million barrels a day, generating 605 billion riyals in revenue, the people said.

The Ministry of Finance declined to comment.

The scenario may signal that the world’s biggest oil exporter doesn’t currently see a need to extend the agreement to cut production beyond 2018 as a global supply glut eases.

Easing austerity “could prove premature if oil prices disappoint,” Jean-Michel Saliba, an economist at BofA Merrill Lynch in London, wrote in a report last week. “Energy policy is likely to remain focused on supporting the oil market rebalancing and enabling the government’s shift to boost growth near-term.”

Top Saudi officials last week rolled out an expansionary budget for 2018 to revive an economy battered by austerity and low oil prices. Gross domestic product contracted 0.5 percent in 2017.

Economy Minister Mohammad Al Tuwaijri, speaking after the budget release on Tuesday, said that the kingdom “found it appropriate to move to a more optimistic scenario” in fiscal planning. “We’re very satisfied with what happened in 2017, and we’ll continue on this journey.”

News Source: Arabian Business

Oil prices may rise further due to geopolitical risks associated with Iran protests, but the ongoing protests is not expected to impact oil production in the Islamic republic, analysts said.

Protests broke out in Iran during the weekend over rising inflation and unemployment with more than 20 people reported to have been killed, which is also third biggest producer of oil within the Opec (Organisation of the Petroleum Exporting Countries) block. The country has an estimated output of 3.8 million barrels per day, according Opec.

“We do see a spike in crude oil prices due to the geopolitical risk associated with the current public unrest in Iran. If the unrest spurs to the larger part of the country, we might see a larger surge in oil prices,” Avtar Sandu, senior manager of commodities in Singapore based Phillip Futures told Gulf News.

However, he ruled out the possibility of oil production getting disrupted due to the current situation in the country.

Oil prices have rallied on the back of Iran unrest as well as due to drawdown in the global oil inventories due to output cuts by oil producing countries in the early morning trading on Tuesday. Brent hit a May 2015 high of $67.29 per barrel on Tuesday whereas West Texas Intermediate surged to $60.74, the highest since June 2015.

Further rise in oil prices is expected in the first quarter. “We are expecting a rosier outlook for oil prices in the coming quarter. Stronger levels of support will be seen through Opec’s global inventory drawdown policies. The projected demand growth will assist to balance out the increase in US shale in the coming quarter,” added Sandu.

Stephen Brennock, a London-based analyst from brokerage firm PVM Oil Associates said the oil market is facing an increasingly potent geopolitical cocktail including the protests in Iran as well as Venezuela’s financial woes, tensions in the Korean peninsula and the scope for supply disruptions in Libya and Nigeria.

Raja Al Mazrouei, the acting executive vice president of Fintech Hive at the Dubai International Financial centre, talks to The National about the year in fintech

Was 2017 the year fintech really took off?

Absolutely. Really it started with announcement of [DIFC’s] FinTech Hive in January of 2017 and then in August we started actual programmes. We received more than 200 applications and we were actually expecting 50. It means the industry is ready and that the timing was just right.

What is Dubai’s position as a fintech hub in a global context?

I think the UAE is taking a lead in the whole region by having the regulation, the funding, the incubators. I think it’s a step ahead of the whole region.

_______

Read more:

DIFC aims to lease 90% of units at Dh1bn Gate Avenue before completion, official says

DIFC unveils $100 million fintech investment fund

_______

In terms of size, how does it compare?

The UAE is serving the whole region as a hub and not just the UAE. The UAE market is small in size relative to the whole region but because we have the platforms that enable these technologies to export innovation to the whole region through these financial institutional partnerships we create a bigger impact. The UAE market is regulated and is small for these banks but they are using the technology from here to serve the wider region which I think is a good move.

What’s the way to gauge the size of a fintech hub?

We measure it in terms of the number of fintech companies in the region. There are 80 in the region and 30 per cent are in the UAE. With regards to fintech, US$18 million has been invested in 2016, $50m in 2017 and its expected in 2018 it’s expected to be $270m for the region. It shows that the region is ready. It’s grown beyond our anticipation. We found that the interest in huge which means the industry is ready. They just need the regulation.

What can we expect for fintech in 2018?

In the DIFC, we have announced two programmes. We’re going to have a programme for incubation and one for acceleration. We will include areas like regtech [regulatory technology], and insuretech and fintech and will be working on the fund that has been announced of $100m. I believe all of these programmes together will help us export fintech to the region.

Will the DIFC become the leading hub for fintech?

Bahrain, Saudi Arabia and Abu Dhabi are also working on fintech hubs. And if you look at the way that they are all working on it towards boosting this industry, it’s a testament that it is an opportunity for the region and everybody is trying to capture it from different perspectives.

News Source: The National

The pain afflicting the oil and gas sector will continue for some time, said OCBC chief executive Samuel Tsien yesterday.

Mr Tsien told a results briefing: “Unfortunately we do not see a noticeable uptick in chartering rates, and no substantial new capital coming in.”

However, he said the stress has not been increasing and added that there have been positive signs, including a slight increase in oil-drilling activity, chartering becoming more active, and oil prices that have now hovered above $50 for quite a while.

Mr Tsien also noted that “there were talks among oil-producing countries that the current control on oil output will be extended, so there will not be a continuously increasing supply from them”.

He added that oil and gas exploration development is a long-term investment and “capital expenditure has not increased for the past three years”.

“How long can that wait? It could be two more years or so, but if it’s more than five years, it will have a negative impact on the future of oil development. So there seem to be some indicators that oil majors will start some drilling activity.”

Net profit rose 12 per cent to $1.06 billion for the three months ended Sept 30 compared with the same period a year earlier, slightly higher than a $1.01 billion average forecast in a Bloomberg poll of seven analysts.

Total income rose 7 per cent to $2.36 billion, while loans increased 11 per cent to $232 billion.

The non-performing loan ratio was 1.3 per cent, stable since Dec 31.

Total non-performing assets (NPAs) came in at $2.98 billion as at Sept 30, 15 per cent higher than the $2.59 billion recorded a year ago, mainly led by the downgrade of corporate accounts in the oil and gas support services sector.

Mr Tsien noted that as at Sept 30, NPAs from the oil and gas sector were 50 per cent of total NPAs, and “we’ll continue to address it, and help customers deleverage to ride over the industry cycle”.

The new NPAs recorded in the third quarter totalled $409 million, with about 38 per cent of those from the oil and gas sector, he added.

Quarterly net interest income grew 12 per cent to $1.38 billion, driven by strong lending growth across the group’s corporate and consumer businesses.

Net interest margins – the difference between interest income generated and the amount of interest paid to lenders – was 1.66 per cent, up from 1.62 per cent a year earlier.

Fee and commission income climbed 14 per cent to $488 million, boosted by the quarterly wealth management fee income, which grew 32 per cent to $205 million.

This was partly owing to the inclusion of the former wealth and investment management business of Barclays here and in Hong Kong.

Mr Tsien noted that wealth management will continue to be a strong driver for the bank, and become an “increasingly important segment for the group… as the accumulation of wealth should continue”.

Quarterly earnings per share was 25 cents, compared with 22.3 cents a year ago, while net asset value was $8.76 a share as at Sept 30, compared with $8.31 as at Dec 31.

OCBC shares closed two cents higher at $11.57 yesterday.

News Source: StraitsTimes

The UK Government is looking to step up regulation of bitcoinamid concerns criminals are using cryptocurrencies to launder money and avoid taxes.

The Treasury wants to regulate bitcoin under European Union anti-money laundering rules, forcing traders in the cryptocurrency to disclose their identities and any suspicious activity.

It expects changes to new EU-wide rules to come into effect by the end of December or early next year.

Bitcoin currently works by anonymous trading, which has fuelled fears that it could be an attractive way of funding illegal activity.

A rise of 1,000 per cent in value this year has worried MPs and banks alike.

Speaking to The Telegraph, Treasury Select Committee member John Mann said he expects the Government to carry out an inquiry over regulating digital currencies.

“These new forms of exchange are expanding rapidly and we’ve got to make sure we don’t get left behind – that’s particularly important in terms of money-laundering, terrorism or pure theft”, he said.

“It would be timely to have a proper look at what this means. It may be that we want to speed up our use of these kinds of thing in this country, but that makes it all the more important that we don’t have a regulatory lag.”

A Treasury spokesperson said: “We are working to address concerns about the use of cryptocurrencies, by negotiating to bring virtual currency exchange platforms and some wallet providers within Anti-Money Laundering and Counter-Terrorist Financing regulation”.

Bitcoin hit record highs of $11,879 (£8,842) on Sunday night, before dropping to $11,253 on Morning morning, according to online cryptocurrency trading platform Coin Exchange.

News Source: Independent

KUALA LUMPUR (Oct 27): Malaysia, whose economic performance has improved sharply this year on the back of stronger commodity prices, expects domestic demand and still-buoyant exports to help drive 5.0% to 5.5% growth in 2018.

Prime Minister Najib Razak, who is under attack in connection with a corruption scandal, is banking on solid headline numbers and populist initiatives in his budget to bolster his chances in an election that must be called by August.

Full-year growth for 2017 is forecast at 5.2%-5.7%, compared with last year’s 4.2%.

The 2017 forecast means Malaysia should have its fastest growth since 2014, after which a crash in commodity prices slowed exports and the ringgit currency weakened sharply, scaring off foreign investors.

The growth and other projections came in the government’s annual economic report, released as Najib began his 2018 budget announcement on Friday.

“With the private sector prevailing as (a) key driver of growth, the government will continue to support economic expansion and safeguard the well-being of the rakyat,” Najib said in the report’s preface, using the Malay word for people.

The current account surplus is projected to increase marginally to 32.9 billion ringgit (US$7.6 billion) in 2018, from the 32.3 billion ringgit estimate for this year.

The report said Malaysia’s fiscal deficit, tracked closely by ratings firms concerned about rising sovereign debt, should narrow to 39.8 billion ringgit, or 2.8 percent of GDP in 2018, slightly better than the 3.0 percent projected for this year.

The government expects inflation to “remain benign between 2.5 and 3.5 percent” next year, tracking slightly lower than the 3.0%-4.0% level forecast for 2017.

Steady progress

A stronger economy and rising oil prices has helped ease pressure on Prime Minister Najib, who has been dogged by a multi-billion dollar scandal tied to state fund 1Malaysia Development Berhad (1MDB), a fund that he helped set up.

U.S. authorities have filed several lawsuits to seize assets it said were allegedly bought using funds misappropriated from 1MDB. Najib has denied any wrongdoing.

In the economic report, the government said it expected all subsectors to register “positive growth” in 2018.

Exports of commodities have rebounded sharply this year. In the first eight months, revenue from natural gas jumped 34.6% to 26.9 billion ringgit from a year earlier and crude oil earnings by 33.2% to 18.2 billion ringgit.

Palm oil exports grew 18.8% to 30.6 billion ringgit over the same period.

Domestic demand will continue to be the main driver of the economy, and is forecast to grow 5.5% to contribute 72.9% to GDP in 2018. Private sector growth is seen at 6.4% in 2017, with a 71.4% share of GDP.

The report said government debt stood at 50.9% of GDP at end-June, compared with 52.7% in 2016.

It did not provide figures on its full-year debt level projection, but said that debt “remains sustainable within the prudent limit” of Malaysia’s self-imposed 55% ceiling.

(US$1 = 4.2325 ringgit) 

News source: The Edge Markets