Broker's take: Nomura expects banks' Q4 results to be subdued

NOMURA has DBS, followed by OCBC, as its top picks in the Singapore banking sector.

For the fourth quarter results that will be announced from Feb 10, the brokerage has earnings estimates that are higher than the consensus for DBS and UOB. This, it said in a report on Tuesday, could be due to an assumption of a higher tax rate and provisioning for its property and commodity portfolio for DBS, and a high profile default case for UOB. For OCBC, its estimates are in line with the markets.

Nomura expects the banks' fourth quarter results to be subdued, as lower volumes during year-end holidays lead to weaker earnings from trading and capital markets. The stronger US dollar and falling oil prices could also result in surprises on the downside, said analysts Jaj Singh and Manjith Nair.

Investors will be on the lookout for the banks' asset quality, margins and growth, they added.

"We believe investors will focus on: 1) potential asset quality problems associated with the property market and falling commodity prices, 2) loan growth momentum amidst the cyclical headwinds in the region, and 3) impact on net interest margins from tighter liquidity conditions in some of the markets."

Beyond the upcoming results, earnings growth will be modest this year, but higher short-term interest rates could be a strong catalyst for the banks, said Nomura.

"We expect the US Fed to increase its interest rates in September and Singapore banks to benefit as most of their assets are pegged to short-term interest rates."