SINGAPORE: All three of Singapore’s banks are expected to see profit declines for the first time since 2016 as they set aside cash for a potential spike in bad loans stemming from the coronavirus-fuelled economic slump.
Net income at each lender probably slid between 21% and 28% in the three months ended March 31 from a year earlier, according to the average estimates of six analysts surveyed by Bloomberg.
DBS Group Holdings Ltd, the nation’s largest bank, may post the steepest profit drop when it kicks off earnings season today, while Oversea-Chinese Banking Corp (OCBC) is forecast to report the smallest contraction.
The pain for Singapore’s lenders is set to persist as the city-state braces for a sharp economic contraction this year thanks to the pandemic that’s crippling manufacturing, tourism and other services. Banks are also contending with falling interest rates and slowing loan growth, and the crash in oil prices may trigger defaults among local firms that cater to the energy sector.
“Banks always tend to do badly in the midst of an economic recession, ” said Min Lan Tan, head of the Asia-Pacific chief investment office at UBS Global Wealth Management. The slumping economy would fuel bad loans, squeeze interest margins and slow credit growth, she said.
OCBC and United Overseas Bank Ltd will report next week.
The last time the trio all posted a profit retreat was in the final quarter of 2016, when many energy-related firms defaulted in the aftermath of an earlier oil slump.
Analysts are predicting a sharp jump in credit costs due to the banks’ exposure to the oil, gas and commodities sector and loans to small and mid-sized companies.
The banks had combined exposure of US$680mil to Hin Leong Trading (Pte) Ltd, the Singapore oil trader that filed for court protection from creditors this month, as of April 9. It’s not clear whether the local lenders will have provisioned against Hin Leong by the end of March.
DBS may have booked a loan-loss buffer of S$640mil in the quarter, up from S$76mil a year ago, according to Morgan Stanley analysts. They see OCBC’s provisions swelling 81% to S$451mil, and UOB’s more than tripling to S$380mil. — Bloomberg
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