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Loan growth in focus for banks' Q2 results

Analysts remain wary of the hit from the cooling property market, and China

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All eyes will be, once again, on the pace of loan growth and deterioration in asset quality in the second quarter, as DBS kicks off the results season for the three banks on Monday.

Singapore

ALL eyes will be, once again, on the pace of loan growth and deterioration in asset quality in the second quarter, as DBS kicks off the results season for the three banks on Monday.

This comes as analysts remain wary of the hit from the cooling property market, and China.

BMI Research said in a recent report that loan growth could come in at a "multi-year low" of 3 per cent this year, given the drag from the property market. The analysts also see more correction for the property prices.

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"In tandem with slowing inflows of the well-paid foreign professionals that drive the rental market, as well as the high likelihood that strict cooling measures will be maintained by the government, and the probability that interest rates will begin to rise in the fourth quarter, we see little prospect for a turnaround in Singapore's property market anytime soon," it said.

Banks guided roughly for a 5 per cent increase in loans this year.

But Nomura noted that concerns over asset quality are overblown.

"Most mortgages are for owner occupation and the low unemployment rate of 1.8 per cent should mean that most homeowners are gainfully employed to service their mortgages," said Nomura in a report last week.

"We believe the Singapore banks are unlikely to show a significant increase in non-performing loans (NPLs) because their cliental base and risk profile are different from the emerging market banks."

Jefferies Singapore said that while the three banks have "rock solid" general provisioning (GP) - with GP to gross good loans exceeding 100 basis points - there should be some shift from GP to specific provisions for all three banks.

Growth of non-performing loans for Singapore banks has been "extremely subdued", it added. Over the last one year, while loans for the three banks grew 12 per cent, non-performing assets grew only 5 per cent.

Nomura expects a "reasonable" second quarter for the banks, as the slowdown in loan growth is somewhat offset by a higher net interest income. Provisioning should be relatively stable as the asset quality is intact, it added.

Moody's, which revised its outlook for Singapore's banking system to stable from negative, said that it has turned more positive given the soft landing of the property market. But it noted the banks' profitability will decline, due to the higher credit costs and slower loan growth.

Domestic credit growth decelerated to 5.9 per cent year on year as at April 2015 - reflecting the slowest level in five years.

"Slower domestic credit growth in Singapore will mean modest further increases in household and corporate leverage, leading to lower headwinds for banks' asset quality."

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