DBS on Thursday guided that its oil-and-gas (O&G) lending portfolio at S$23 billion makes up its single-largest loan exposure to impacted industries made vulnerable by the Covid-19 pandemic, and that it sees more allowances set aside specifically for O&G support services.

This comes as the bank reported a 29 per cent fall in Q1 net profit from a year ago that brought its earnings to its lowest level since 2017.

Singapore's largest bank opened the results season for the local trio with a large bump in allowances set aside to prepare for hits from the Covid-19 global pandemic.

Investors pushed the counter higher on the results, amid broad strength in overall market performance on Thursday morning. As at 12.04pm, shares of DBS were trading at S$20.03, up 83 Singapore cents or 4.32 per cent.

The virus outbreak, which began in late December last year, has roiled global economies and added to the severe stress in the oil industry.

DBS has identified eight industries more directly impacted by slowdown in its Q1 update. They are: O&G, aviation, hotels, gaming/cruise ships, tourism, retail, food and beverage, as well as shipping.

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Of the bank's loan exposure to the "impacted industries", O&G makes up the single-largest sector with lending totalling S$23 billion.

As an indication, the specific provisions of S$383 million taken by DBS reflect one loan to an oil trader that was recognised as a non-performing asset in the quarter.

It did not identify the oil trader, but CEO Piyush Gupta said during a media briefing on Thursday that "everybody knows what that is".

It has been widely reported that Singapore's oil trading giant Hin Leong has collapsed amid a staggering pile of debt. Singapore banks have a total exposure of about US$600 million to Hin Leong, with DBS's exposure reported at around US$290 million.

Of the total S$5 billion loans to other oil traders, 50 per cent are backed by letters of credit from banks, DBS said. It also lends to global traders or state-owned companies.

In its lending to support services, three-quarters of its lending exposure - that is, S$3 billion out of S$4 billion - have been recognised as non-performing assets. The bank expects to take further specific provisions on its exposure to support services, it said.

As it is, the bank said it had taken a conservative stance in Q3 2017 to recognise soured exposure to support services, and had marked down collateral.

It has a S$7 billion loan exposure to oil producers, mainly to oil majors and state-owned companies, the bank said.

While the bank's overall exposure to oil-related companies has gone up in the last few years, it has adjusted its portfolio breakdown, said Mr Gupta.

The bank now has a much bigger exposure to oil producers and processors - at about 60 per cent of the S$23 billion O&G portfolio - compared with that to the support services segment, with the exposure there at S$4 billion, or just over 15 per cent.

DBS showed that of its loans of S$221 billion to large corporates - that is, excluding small and medium-sized enterprises (SMEs) - the S$46 billion lending to those in "impacted industries" stood at 20 per cent of that loan book.

It also has a S$6 billion lending exposure to aviation sector, which has been hammered by the lockdown measures taken globally to curb the virus contagion.

Of this, 70 per cent is split evenly between lending to national airlines that is backed by aircraft, as well as bank-related and international leasing companies. Another 15 per cent is to Singapore companies in the aviation industry.

Total specific allowances taken by DBS translate to 35 basis points (bps) of loans.

The bank guided that credit costs are to rise to between S$3 billion and S$5 billion - reflecting 80-130 bps of loans - cumulatively over two years. It has guided for credit costs over two years to account for uncertainties on how various relief packages will impact souring assets or defaults by the end of 2020, said Mr Gupta.

CGS-CIMB analyst Andrea Choong said in a flash note that the credit-cost guidance could mean an average of 67 bps of credit costs each year unless all are frontloaded. She kept her "hold" rating on the counter.

Total provisions set aside by DBS stood at S$1.086 billion, comprising a S$703 million cushion under general allowances, and the remainder for specific accounts that have gone sour.

Of that S$46 billion loan exposure to "impacted industries", loans to Singapore Inc companies by DBS make up S$5 billion.

The bank has an SME loanbook of S$39 billion, 10 per cent of which is exposed to highly impacted industries such as hotels, food and beverage, and retailers.

Almost 90 per cent of SME exposure is in Singapore and Hong Kong, with that predominantly secured against property. Lending criteria to SMEs have also been tightened over the past two years, the bank guided.

Its non-performing loan ratio ticked higher to 1.6 per cent, from 1.5 per cent.

In a note on Thursday, Jefferies analyst Krishna Guha said: "Credit cost will depend upon duration of the slowdown and how collateral values evolve...capital buffer, earlier digitalisation efforts and ample system liquidity put the bank in good stead to face the crisis."

DBS maintained its quarterly dividend payout at 33 Singapore cents per share, but the bank would "keep an open mind" on dividend policy, given current macroeconomic uncertainties, said Mr Gupta.

DBS's chief financial officer Chng Sok Hui said this quarterly dividend of 33 Singapore cents per share will be paid together with the 2019 final quarterly dividend of another 33 Singapore cents per share, with payment for the latter deferred to May 26 because the shareholder meeting had been postponed amid tightened lockdown measures. DBS will hold its virtual annual general meeting today.

The bank's CET-1 ratio is expected to not dip significantly below the target operating range of 12.5-13.5 per cent, unless the macroeconomic environment worsens significantly. DBS's CET-1 is currently at 13.9 per cent, sitting comfortably above regulatory requirements.

Its net profit for the first three months ended March 31, 2020 dropped to S$1.165 billion compared with S$1.651 billion from the same period a year ago. This is in line with an average estimate of S$1.13 billion from four analysts polled by Refinitiv, but is below the S$1.264 billion in estimated Q1 net income according to a Bloomberg poll of four analysts.

The bank guided that its full-year profit before allowances would be around 2019 levels after factoring in declines for the rest of year.

DBS's stress-test scenario offers a look at how lenders now see the crisis unfolding.

The bank estimated as a base scenario that lockdowns in major economies continue until mid-2020, gradual recovery is seen in the second-half of the year and continues through to muted growth in 2021, while financial markets correct by an overall 20 per cent this year.

The bank set its stress scenario by assuming that lockdowns in major economies continue through to end of the third quarter, with economic activity in 2021 "still materially below" 2019 levels, and financial markets to correct by 50 per cent in 2020.

Under these scenarios, resulting impact on credit costs was comparable to the 2002-2003 period - when the Severe Acute Respiratory Syndrome (Sars) outbreak plunged Singapore into a recession - and during the global financial crisis in 2008-2009.

A Citi report had said that past recession peaks in credit-cost terms stood at up to 200 bps in the Asian financial crisis, and 100 bps in the global financial crisis.

The bank has also provided loan moratoriums for more than 1,800 corporate facilities representing over S$3.4 billion in total loans outstanding. It has availed S$3.2 billion in loan facilities to Singapore SMEs under the government relief programme as well.

In the housing segment, DBS said its mortgage book stood at S$75 billion in total, with minimal losses expected, as in past crises. Close to 8,000 mortgage principal and interest payment applications have been deferred, representing S$4.7 billion in loans outstanding.

Net interest margin (NIM) stood at 1.86 per cent for the first quarter, unchanged from a quarter ago, and down from 1.88 per cent a year ago. The bank flagged the lag effect, saying that the NIM in Q1 does not reflect impact of recent interest rate cuts. This will only be seen from Q2. Net interest income was up 7 per cent to S$2.48 billion. (see amendment note)

"The obvious pressure point is interest rate," said Mr Gupta.

Fee income rose 14 per cent from a year ago to S$832 million, while gains in investment securities boosted its income from other non-interest activities by 39 per cent to S$712 million.

Mr Gupta said the strong fee income generated from the wealth management business may be exceptional to the first quarter, and not through sustain through the next few quarters. However, a diversified fee portfolio with fees coming from bonds issuances too, could help.

DBS will hire judiciously, and does not see job cuts ahead.

"We don't want to retrench people or cut salaries, we think it would be the wrong thing to do," said Mr Gupta.

But expenses are expected to stay flat compared to last year's level. Cost-income ratio has improved to 39 per cent, based on Q1 numbers. Bonuses will also be "aligned to earnings", the bank said.

Amendment note: In an earlier version of this story, we said that the NIM was unchanged from a year ago, and down from 1.88 per cent a quarter ago. It should be unchanged from a quarter ago, and down from 1.88 per cent a year ago. The story has also been edited to make clear that Q1 net profit fell 29 per cent from a year ago, and that credit costs would be comparable to the Sars period of 2002-2003. The article has been amended to reflect these changes.