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Friday, November 6, 2020 – 5:50 am
Singapore
SINGAPORE banks feel a slight increase in business confidence, alleviating some of their worst fears.
But caution still reigns as they battle the effects of a global health crisis that has plagued economies for much of the year.
Part of that sentiment surge can be found in third-quarter results that beat estimates. With DBS and OCBC closing the earnings season on Thursday, shares in all three banks rose sharply, amid a buoyant market that also reacted to their expectations of US election results.
In a report, Krishna Guha, an equity analyst at Jefferies, said: “DBS appears to have better visibility into 2021 growth; OCBC is focused on driving long-term sustainable value, while UOB is more optimistic about the quality of the assets”.
In the third quarter, revenue related to fees reached record levels for DBS and OCBC.
At OCBC, equity income of S $ 938 million in the quarter was the highest since 2018. Its brokerage and wealth management fees were above 2019 levels. Client inflows that made up treasury income also reached a new record in the third quarter. As for DBS, net commission income of S $ 913 million recovered 17 percent during the quarter to pre-Covid levels, reaching its third highest level on record. This was led by wealth management and card fees.
Fee income at UOB increased 15 percent quarter-on-quarter as wealth management and credit card fees recovered. This also helped offset some of the decline in business income.
All three lenders continued to bolster provisions to cushion bad loans during the uneven economic recovery next year; maintained or slightly reduced the cumulative credit cost guidance through 2021.
DBS’s net earnings for its third quarter fell 20 percent to S $ 1.30 billion, as the bank continued to increase allocations from the prior-year period. Total allocations more than doubled from a year ago to S $ 554 million for the quarter. Their results dwarfed an average estimate of S $ 1.17 billion from four analysts, Refinitiv data showed.
OCBC posted a 12 percent drop in net profit for the third quarter to S $ 1.03 billion, and total allocations increased 8 per cent to S $ 350 million. This was stronger than an average earnings estimate of S $ 865 million cited by four analysts surveyed by Refinitiv.
UOB’s net income fell 40 percent to S $ 668 million. The appropriations more than tripled to S $ 477 million, up from S $ 145 million a year ago. But this still beat an average estimate of S $ 570 million from three analysts, according to Refinitiv data.
The way in which most of Singapore’s debt default is being rolled back will be closely monitored.
DBS chief Piyush Gupta cautioned that it remains difficult to determine the extent of the breaches, as the moratoriums still hide the true damage. Singapore’s largest bank will maintain its guidance for total appropriations between S $ 3 billion and S $ 5 billion.
Still, some of the worst bad loan fears of those on vacation debt schemes have come down a bit.
In particular, OCBC does not expect a new wave of loan default requests amid the extension of debt-specific holidays in Singapore. At the end of October, OCBC’s moratorium relief across the group was reduced to approximately S $ 13.6 billion, or 5 percent of the total loan book compared to 10 percent in the second quarter, after the exit from debt relief program in Malaysia.
About nine out of 10 of those under the forbearance program have returned to their original payment schedules, which is better than expected, said the bank’s group chief executive Samuel Tsien.
At the UOB, the share of the bank’s loan portfolio defaulted has fallen to 10 percent, from 16 percent in July, largely due to the expiration of the general loan default in Malaysia.
UOB CFO Lee Wai Fai noted that some clients who had sought debt relief still have the ability to pay, but could be taking advantage of the relief to channel funds to other uses.
While third-quarter results may not demonstrate the true measure of distress, the overall impact “may not be as bad as feared,” Lee said.
Margins are undoubtedly hurting amid the collapse in rates. And it comes along with tepid loan growth and the relentless surge of customer deposits. Consequently, total revenue remained low for the trio, despite the higher fees.
OCBC’s CASA deposits (checking account savings accounts) rose to a record S $ 182 billion, with a CASA index at a new high of 59.2 percent.
DBS deposits in the third quarter increased 12 percent compared to the prior year, reflecting S $ 70 billion of CASA inflows.
The net interest margin (NIM) for the three banks is at 1.53-1.54 percent, a far cry from the NIMs of 1.77-1.9 percent seen a year ago.
Guha from Jefferies added that what would add even more convenience is the reinstatement of cash dividends. DBS, which has a quarterly dividend payment policy, will pay a dividend per share of 18 Singapore cents, unchanged from a quarter ago. It will apply its scrip dividend scheme.
OCBC and UOB pay their dividends twice a year. In the second quarter, all three offered scrip options.
On Thursday, DBS shares closed up 88 cents or 4.08 percent at Singapore $ 22.43; those at OCBC gained 30 cents or 3.48 percent at S $ 8.93. UOB shares rose 64 cents or 3.23 percent to end at Singapore $ 20.44.
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