Singapore Banks Flag Risks After Disappointing Earnings Season
(Bloomberg) -- After being stung by the market turmoil at the end of last year, Singapore’s banks are bracing for fresh challenges from China-U.S. trade tensions and a slowing world economy.
“We expect ongoing global uncertainties to continue to weigh on business sentiment in the near term,” United Overseas Bank Ltd. Chief Executive Officer Wee Ee Cheong told reporters Friday in Singapore after fourth-quarter results missed estimates. Oversea-Chinese Banking Corp. CEO Samuel Tsien said loan growth will slow this year and he predicted more choppiness in Asian markets as geopolitical risks put a strain on the global economy.
The banks’ muted outlooks illustrate how Singapore, Southeast Asia’s finance and shipping hub, is getting slammed by mounting trade disputes and China’s economic slowdown. Adding to lenders’ challenges are easing expectations of interest-rate increases, which typically support loan margins.
“Trade tensions affect the whole regional market and trade flows have reduced,” Tsien said at a news briefing. Some corporate clients have built up stocks ahead of any tariff increases, and are taking longer than expected to run them down, he said. China’s slowdown has also reduced liquidity, he added.
Data this week showed Asian economies from Japan to South Korea are hurting from the slump in global trade. Singapore’s exports fell the most in more than two years in January.
Both OCBC and UOB reported higher net interest income in the quarter, thanks to growth in loans. But the outlook for lending profitability is being clouded by the prospect of slower interest-rate increases in the U.S. and elsewhere. UOB’s net interest margin declined from the previous quarter, while OCBC’s was unchanged.
OCBC blamed much of its profit decline on a slump at its insurance unit, which booked mark-to-market losses on investments due to the market turbulence. The bank also added $205 million in loan allowances -- about four times as much as in the previous quarter -- suggesting loan quality may be deteriorating.
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“OCBC’s weak results came from practically every part of the business coupled with a significant jump in its non-oil nonperforming loans,” Marcus Chua, an analyst at Nomura Holdings Inc. in Singapore, said in a report. UOB disappointed investors who were anticipating improvement in its net interest margin, Chua said.
Shares of OCBC fell 1.7 percent as of 1:30 p.m. in Singapore. UOB slid 1.9 percent, the biggest intraday decline this year.
Larger rival DBS Group Holdings Ltd. also relied on lending for profit last quarter as the market rout hit wealth and trading, results showed Monday. Still, CEO Piyush Gupta said in an interview that wealthy clients who “froze” at the end of 2018 are becoming more active this quarter.
OCBC Key Figures
- Net income fell 11 percent to S$926 million ($684 million), missing the S$1.12 billion average analyst estimate
- Allowances for loans and other assets rose 14 percent from a year ago
- Wealth management fees dropped 13 percent
- Net interest margin expanded 5 basis points from a year ago to 1.72 percent, but was flat from the previous quarter
- Net trading income plunged 91 percent
UOB Key Figures
- Net income rose 7 percent to S$916 million, missing the S$980 million average estimate
- Wealth management fee income fell 20 percent
- NIM shrank 1 basis point year-on-year and also from previous quarter to 1.80 percent
- Net loss from investment securities totaled S$59 million
- Allowances for credit and other losses declined 9 percent
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