Malaysian banks cutting exposure to O&G: The struggle for survival

Malaysian banks are cutting exposure to oil and gas (O&G)-based loans. While the banks save themselves, O&G companies are struggling harder to stay afloat, wrote Asean Today.

In the article by Joelyn Chan, the portal claims the banking sector in Malaysia is staying away from the embattled sector, weeks after the banks refuted earlier press reports that it was not giving loans to O&G companies.

It is well known that the Malaysian oil and gas industry has been suffering from prolonged low oil prices, which fell from more than US$100 per barrel to the current US$65.

The portal said prices will unlikely return to its past average of at least US$80 per barrel soon.

It cites the The Edge’s December 2017 weekly report that indicated banks have been more cautious in their lending to the O&G sector in recent years.

It quoted O&G players like Deleum Bhd and Uzma Bhd, saying it may be reasonable for the banks to act in its own interest.

However, their decision to not lend capital needed may drag Malaysian Oil and Gas Services and Equipment (OGSE) industry further away from its long-term vision of being able to compete with the best in the world across multiple categories in terms of cost and quality.

Petronas falling revenue

Petronas itself has seen a not so good performance which may be indicative of the industry performance, saying its annual report 2016, revenue decreased by 17% to RM204.9 billion (US$50.2 billion).

Revenue has been falling since its financial year 2014. Although profits still increased, it is due to factors such as lower operating expenditure and net impairment on assets.

Deteriorating loan ratio

“The Malaysian debt market is dead … asset cover here is 2.5 to 3 times while in Europe, it is 0.8 times,” said Vaidyanthan Nateshan, CEO of De Raj Group AG.

Cash flow problems in some upstream service providers have resulted in deteriorating loans ratio performance.

The reason for this situation, said the portal, is that O&G companies are not performing like how they used to be.

“Malaysia has no direct or full power over OPEC, and thus, the industry remains susceptible to changes in oil prices. It is not the end of the world for oil and gas companies, but they are in for an extended struggle towards long-term profitability and sustainability, said the portal.

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