facebookHow will the recent Oil crisis affect the STI index since the large majority of them STI are heavily influenced by Finance companies like DBS, OCBC and UOB? - Seedly

Anonymous

21 Apr 2020

Stocks

How will the recent Oil crisis affect the STI index since the large majority of them STI are heavily influenced by Finance companies like DBS, OCBC and UOB?

Interested to know how you feel the market will react with the recent Oil prices reaching a negative.

Discussion (2)

What are your thoughts?

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Elijah Lee

21 Apr 2020

Senior Financial Services Manager at Phillip Securities (Jurong East)

Hi anon,

While there is some level of exposure for our local banks, the long term impact is likely to be minimal. Every bank has made provisions for non-performing loans, and even if the ratio rises, the banks are well positioned to weather it. Sure, their earnings may take a slight hit in the short term, but the banks have evolved over the past decade into building multiple streams of revenue in other segments such as wealth management, so any impact on their loans will be minimized.

Short term wise, if they take a hit and their prices dip, it might just be a good time to add to your positions. (Not a recommendation, but do your own homework before buying any share)

Hi anon, my take is that if oil price continues to be depressed, more oil companies might default on their loans, and that would cause non-performing loans ratio of the banks to rise.

Having said that, our local banks are well-capitalised and have weathered through and learnt from the GFC in 2008/2009 and the oil price crash of 2016. So, in my opinion, any effect on the banks is likely to be mitigated by stringent measures already put in place.

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