Singapore Banks Cautiously Upbeat as Profit Beats Estimates

(Bloomberg) -- Two of Singapore’s largest lenders struck a cautiously upbeat tone after profit in the third quarter beat forecasts driven by gains on fees from lending and wealth, and lower provisions for bad loans.

Oversea-Chinese Banking Corp., the city state’s second-biggest bank, reported a 19% rise in net income to S$1.22 billion ($904 million), while United Overseas Bank Ltd. posted a 57% jump to S$1.05 billion. Both results came in slightly ahead of analyst estimates. 

Earnings for both lenders were helped by their wealth businesses with OCBC’s income from insurance, private banking and other units making up 35% of the group’s income. UOB also saw higher fees from wealth and credit cards -- a key indicator of improved economic activity. Wealth fees rose almost 6%, while assets under management also expanded.

The results reflect a growing optimism in Singapore where gross domestic product expanded 6.5% in the third quarter. The city state has been slowly recovering and gradually reopening its borders after a turbulent year when economies were hit by the global coronavirus pandemic.

“Amid near-term uncertainties, the gradual reopening of borders bodes well for business flows and we remain positive of strong activities along the Greater China-Asean trade corridors,” UOB Chief Executive Officer Wee Ee Cheong said in the statement Wednesday, referring to the group of 10 Southeast Asian nations.

Uncertain Path 

While the banks offered optimism on Singapore’s recovery, markets in surrounding countries may face a trickier path. 

“Rising risks in Asean need to be watched,” Bloomberg Intelligence analyst Rena Kwok said after the earnings. Risks for OCBC include further slippages from “vulnerable” retail and small business in Malaysia, where OCBC also saw some weakness, she said.

UOB Chief Financial Officer Lee Wai Fai said the economic recovery in Southeast Asia will be “uneven” in 2022, in countries including Malaysia and Thailand, which UOB operates in. Still, the bank’s buffers for potential soured assets are high and any impact is unlikely to be significant, he said.

“We are confident that we will able to handle that. Our take is next year will be a better year,” Lee said on a call with reporters. 

UOB shares slipped 0.9%, while OCBC dipped 0.5% as of 11:22 a.m. in Singapore trading.  

Key Markets 

OCBC CEO Helen Wong expects business momentum to continue into next year, when economic growth in the key markets the bank operates in may expand between 3% to 6%, she told a virtual media briefing after the results. The bank counts Singapore, Malaysia, Indonesia and Greater China as its core focus. 

The bank remains “positive on the long-term outlook but are watchful of the near-term headwinds from the pandemic,” Wong said. 

Operating expenses at the bank rose 8% to S$1.19 billion in the third quarter, part of that came from a reduction in the government’s job support scheme, the bank said. 

OCBC’s net interest margin dropped 6 basis points from the previous quarter, and two basis points from a year earlier. The quarterly drop was due partly to lower asset yields, the bank said.

Singapore’s largest bank, DBS Group Holdings Ltd., is due to report earnings on Nov. 5. 

©2021 Bloomberg L.P.