* Fund firm says banks supported by strong balance sheets
* Increases exposure to China, trims India holdings
* Sees signs of stability in Chinese economy (Adds more quotes)
By Anshuman Daga and Jack Kim
SINGAPORE, Nov 14 (Reuters) - Aberdeen Standard Investments said it likes Singapore banks due to their strong balance sheets and quest for new growth drivers but warned that the management of top lender DBS risks losing credibility if it takes any more big provisions for oil and gas loans.
Last week, DBS, Southeast Asia’s biggest bank, reported an unexpected slide in its quarterly profit, which fell 23 percent as the bank nearly doubled provisions for loans to the oil and gas sector.
During its results news conference, DBS CEO Piyush Gupta said the bank had taken the opportunity to accelerate booking the provisions. The lender had taken provisions in some earlier quarters too.
“They have had a few rounds of kitchen sinking, so I’m not sure how long,” Christopher Wong, a senior investment manager at Aberdeen, a major investor in Singapore banks, said at the Reuters Global Investment 2018 Outlook Summit on Tuesday.
Wong said he hoped that this was the last major provisioning under Gupta “because if not his credibility will be on the line”.
Wong, who is part of the fund firm’s Asian equities team, helps run the Aberdeen Singapore Equity fund, which had assets of S$797 million ($586 million) as of end-September and is the biggest Singapore-focused stock fund, according to Thomson Reuters Lipper.
Oversea-Chinese Banking Corp and DBS were the top two holdings of the Aberdeen Singapore Equity fund, with nearly half of the fund’s assets allocated to the financial sector, as of end-September. United Overseas Bank, the smallest listed local lender is also among the top five holdings.
Wong said Aberdeen is comfortable with its stakes in Singapore banks.
“The balance sheet is rock solid, they’ve been beefing up risk management, the asset quality is under control and provisioning is good,” he said.
Over the past year, DBS shares have risen 47 percent, while OCBC is up 37 percent compared with a 19 percent rise in MSCI Asia Pacific’s exJapan index for banks.
Wong said Asian markets were supported by strong corporate earnings growth but valuations were creeping up. “There is still going to be momentum driven by earnings growth, but valuations are high,” he said.
Indian markets had become more expensive and Aberdeen was “taking money off the table,” said Wong, who joined Aberdeen in 2001 in its private equity unit.
He said the fund firm had become more positive on Chinese markets and had raised its exposure to the technology sector.
“All in all, I think we’ve for the past year probably almost doubled our exposure to China given that we are seeing signs of stability in terms of the economy.”
China’s economy has surprised financial markets with robust growth of nearly 6.9 percent in the first nine months of this year, underpinned by a recovery in its manufacturing and industrial sectors thanks to a government-led infrastructure spending spree and a resilient property market.
“Everything seems to be better than expected, whether it’s on the macro front, or on the companies front where results have been quite resilient,” he said.
Follow Reuters Summits on Twitter @Reuters_Summits (For more summit stories, see) ($1 = 1.3607 Singapore dollars) (Reporting by Anshuman Daga and Jack Kim; Additional reporting by Aradhana Aravindan in SINGAPORE, Marius Zaharia and Umesh Desai in HONG KONG and Gaurav DOGRA in BENGALURU; Editing by Muralikumar Anantharaman and David Evans)