Singapore banks flag robust growth as bad loans ease

SINGAPORE (Reuters): Singapore bank earnings show lenders on track to follow global peers bouncing back from a pandemic-hit year, beating estimates as economic recovery helps them reduce loan-loss provisions on top of strong wealth management business.

On Friday (May 7), Oversea-Chinese Banking Corp, Singapore's second-largest listed lender, more than doubled its quarterly profit, rounding up a strong showing by DBS Group and United Overseas Bank.

"We expect that the recovering macroeconomic environment will result in further improvements in the profitability of large Singaporean banks in 2021, supporting their very high Aa1 credit ratings," said Eugene Tarzimanov, a senior credit officer at Moody's Investors Service.

The robust results followed a similar trend seen across bank earnings in Australia, Europe and the United States.

Net profit for OCBC came in at a record S$1.5 billion ($1.13 billion) in the quarter ending March versus the S$901.9 million average of three analysts' estimates compiled by Refinitiv. This compared with S$698 million profit reported a year ago.

Allowances for credit losses declined to S$161 million from S$657 million a year earlier.

"Earnings were up in our core markets and the momentum across our businesses is building up from renewed market optimism," Chief Executive Officer Helen Wong, who took charge last month, told reporters.

"We look at our loan growth as having momentum due to faster growth in the rest of the year," Wong said, adding that OCBC was set for mid-to-high single digit loan growth this year.

Last month, Singapore's central bank said economic growth is likely to exceed the upper end of the official 4-6% forecast range for 2021, with the small and open economy having contracted 5.4% last year in its worst-ever recession.

The stellar earnings at OCBC, which counts Singapore, Greater China and Malaysia, among its key markets, were underpinned by growth in trading income, fees and commissions and insurance.

Kevin Kwek, a senior analyst at Stanford C. Bernstein, said OCBC and DBS had the stronger performance among the banks, though "loan growth for OCBC was however the weakest, flat year-on-year, so any improvement there could help sustain the recovery".

All three banks have said they are open to looking at parts of Citigroup's Asian consumer business, which is up for grabs.

OCBC's net interest margin, a key profitability gauge, fell to 1.56% from 1.76% but was stable from the fourth quarter.