Singapore banks top their estimates but caution in weak markets

The DBS Bank logo appears in Taipei, Taiwan, January 28, 2022. REUTERS/Ann Wang

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SINGAPORE (Reuters) – Singaporean lenders DBS Group (DBSM.SI) and OCBC (OCBC.SI) gave a cautious outlook on Friday after reporting a 10% drop in quarterly profit amid weak economic growth, although they still outperformed Analyst estimates. .

Although higher interest rates and a full reopening of Singapore’s trade-dependent economy after restrictions during the pandemic bode good news for banks, inflation risks are weighing on their prospects.

“We expect profitability to increase further as upcoming interest rate increases will boost margins,” said Eugene Tarzinov, a senior credit officer at Moody’s Investors Service, referring to DBS, OCBC and smaller rival United Overseas Bank (UOBH.SI). “One of the main risks to our stable credit outlook is the potential rise in inflationary pressures.”

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Shares of DBS, Southeast Asia’s largest bank, rose 4% while OCBC shares jumped 3.6%. The broader market (.STI) was up 1%.

DBS’ net profit fell to S$1.8 billion (US$1.30 billion) in the January-March period from a record S$2 billion a year earlier. According to Refinitiv data, the net profit was above the average estimate of S$1.63 billion from six analysts.

OCBC in second place reported first-quarter net profit of S$1.36 billion, down from S$1.5 billion a year earlier, but this was also higher than the average estimate of S$1.2 billion.

Both banks have built some of the largest wealth management firms in Asia over the past decade, and both have warned of weakening in the lucrative sector due to volatile markets.

At DBS, wealth management fees fell 21% in the quarter, while OCBC wealth management income fell 26%.

UOB also reported a 10% drop in net profit, but it did not stick to market estimates. Its shares fell 1%.

Singaporean banks benefited last year from a strong recovery in markets previously hit by the pandemic and from 7.6% economic growth. This year, the central bank expects growth of only 3% to 5%.

Earlier this week, Standard Chartered Global Bank (STAN.L) beat expectations on first-quarter earnings and announced a strong forecast, while HSBC (HSBA.L) announced an unexpected hit to its capital. Read more

DBS CEO, Piyush Gupta, warned of the continuing risks from higher commodity prices, rising inflation, and weak economic growth.

“When you put all of these things together, it’s quite clear that the outlook for the next year or so is going to be hard to predict,” he told reporters.

DBS earns most of its profits from Singapore and Hong Kong, while OCBC’s main markets are Singapore, Greater China and Malaysia.

Earlier this year, DBS and UOB separately snapped up retail assets sold by Citibank (CN) in the Southeast Asian and Taiwan markets.

Earnings at DBS, OCBC and UOB all jumped from the fourth quarter while credit costs remained muted. UOB’s earnings were lower than in the fourth quarter.

“The market will also be looking for signs, and will see higher margin interest starts, decent loan growth of 8-9%,” said Kevin Quick, senior analyst at Sanford C. Bernstein.

(1 dollar = 1.3868 Singapore dollars)

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(Reporting by Anshumman Dagha) Editing by Shree Navaratnam and Bradley Peret

Our Standards: Thomson Reuters Trust Principles.

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