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Banks stung by Q4 market volatility

Singapore lenders signal weaker loan growth and margin expansion in 2019

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Market turmoil swept through OCBC, DBS and UOB in Q4 - with OCBC reporting an 11% fall in net profit for Q4; UOB reporting that its non-interest income excluding fees and commission dropped 46%; and DBS saying its treasury markets income halved to S$92m in Q4 from a year ago.

Singapore

THE market turmoil swept through the three banks' results in the fourth quarter, with the trio also signalling weaker loan growth and margin expansion for this year. The banks' results were also underwhelming, by the Street's expectations.

OCBC came in on Friday with an 11 per cent fall in net profit for the fourth quarter, hit by the mark-to-market losses on securities held by Great Eastern's shareholder funds. The insurer, which is controlled by OCBC, this week reported a 68 per cent plunge in net profit for the fourth quarter, roiled by volatile market conditions.

OCBC's net profit stood at S$926 million, down from S$1.03 billion in the year-ago period. This missed two analysts' expectations of S$1.11 billion, a Bloomberg poll showed.

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The market impact was also seen across the other two banks. Over at UOB, which also reported its results on Friday, its non-interest income excluding fees and commission dropped 46 per cent to S$140 million due to unrealised mark-to-market losses on investment securities.

DBS's treasury markets income halved to S$92 million in the fourth quarter from a year ago. In the quarter, capital markets were, in the words of DBS chief Piyush Gupta, hit by a "perfect storm", with almost every asset class hammered.

Wealth management income across all three banks were lower, reflecting market sentiment.

To be clear, when OCBC strips out the impact from Great Eastern, net profit after tax from its banking operations grew 22 per cent from a year ago to S$817 million. The group's net interest income climbed 7 per cent to S$1.52 billion, driven by loan growth and a five basis point rise in net interest margin (NIM) to 1.72 per cent.

Overall, UOB's fourth quarter net profit rose 7 per cent to S$916 million from a year ago, driven by higher net interest income, even as NIM slipped slightly to 1.8 per cent, down one basis point. The two analysts polled by Bloomberg were looking for a net profit of S$943 million from UOB.

DBS's net profit rose 10 per cent over the year to S$1.32 billion. Net interest income was up 11 per cent amid an expansion in NIM. This slightly came under three analysts' projection of a S$1.35 billion in net profit.

In terms of home loans, Singapore's largest mortgage bank DBS said it expects about S$1.5 billion to S$2 billion in mortgage growth for 2019. DBS's mortgage book grew S$500 million for the fourth quarter ended Dec 31, and just under S$2 billion for the whole year.

UOB's CEO Wee Ee Cheong said he expects a further slowdown in mortgage volume by 35-40 per cent in 2019. UOB has a market share in the mortgage business in Singapore of 24-25 per cent, versus DBS's pole position of 31 per cent.

But mortgages may not "fall off the edge", said OCBC's chief operating officer Ching Wei Hong, who oversees the consumer banking business. Given the amount of en bloc deals in recent times, some of them are due to kick in this year, leading some home owners to re-enter the market as buyers, he said. Property firms have also adjusted pricing on the backdrop of cooling measures.

All three banks registered loan growth of more than 5 per cent for the full year. For 2019, both DBS and UOB are expecting a mid single-digit loan growth for the full year. OCBC is slightly more bearish, guiding for a low to mid-single digit loan growth.

If the Federal Reserve pauses its rate hikes, DBS's Mr Gupta forecast DBS's NIM to rise four to five bps. Should there be rate hikes, NIM is expected to head up five to six bps.

OCBC's chief Samuel Tsien said the NIM is on an upward trend, though the expansion in 2019 should be less than five bps. UOB's Mr Wee said the NIM has "limited potential upside".

Shares of OCBC closed on Friday at S$11.39, down 18 Singapore cents or 1.56 per cent, while shares of UOB ended 40 Singapore cents lower to S$25.58. DBS bucked the trend, closing up 20 Singapore cents at S$25.01.

DBS's treasury markets income halved to S$92 million in Q4 from a year ago. In the quarter, capital markets were, in the words of DBS chief Piyush Gupta, hit by a "perfect storm", with almost every asset class hammered.