Hot stocks: Singapore banks jump after Q3 profits trounce estimates

SHARES of DBS, OCBC and UOB climbed to multi-month highs after their third-quarter financial results exceeded expectations and signalled that the trio was withstanding the Covid-19 pandemic's impact on loan quality and the economy.

By the midday break on Thursday, DBS gained S$0.83 or 3.9 per cent to S$22.38 on 6.1 million shares changing hands, OCBC advanced S$0.30 or 3.5 per cent to S$8.93 on 9.1 million shares traded, and UOB rose S$0.55 or 2.8 per cent to S$20.35 with 4.6 million shares traded.

The three counters were the most actively traded by value on the Singapore bourse for the morning. They were among the biggest gainers on the benchmark Straits Times Index.

Besides the better-than-expected results, the stock price surges also came amid a broad-based rally - Singapore equities along with the rest of the region's markets delivered another strong showing, with investors buoyed by news from the US presidential race. Overnight, the odds had swung to favour Democratic challenger Joe Biden after he took Michigan and Wisconsin, flipping the two states won by incumbent Donald Trump.

DBS's third-quarter earnings outperformed average estimates of S$1.17 billion from four analysts, according to Refinitiv data, and the S$1.12 billion average estimate of analysts surveyed by Bloomberg.

This was despite a 20 per cent slump in net profit to S$1.3 billion for the July-September period. Total income was down 6 per cent, with both net income and fee income hurt, while trading income rose.

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Singapore's largest bank on Thursday reported that its total allowances more than doubled from a year ago to S$554 million for the quarter.

Yet revenue increased in some businesses such as wealth. DBS chief executive Piyush Gupta said in a presentation that "business momentum improved", with wealth management and a pickup in card spending among the bright spots.

He expects a strong economic rebound in Asia, from a low base, to fuel mid-single-digit loan growth and double-digit fee income growth in 2021.

OCBC, meanwhile, posted a smaller-than-expected drop of 12 per cent in its net profit to S$1.03 billion for the third quarter, from S$1.17 billion a year ago, as lower interest income and higher allowances weighed.

This still beat the S$864.9 million average estimate from four analysts based on Refinitiv data, and was higher than the S$850 million projected by analysts surveyed by Bloomberg.

Over the quarter, net income jumped 40 per cent on lower allowances.

OCBC on Thursday said it does not expect a fresh wave of loan moratorium requests amid the extension of targeted debt holidays in Singapore, even as the lender continues to chalk up provisions to buffer against bad loans.

Its chief executive officer Samuel Tsien said OCBC is working on an extension of the relief support scheme for affected customers, although this will not be done "on a blanket basis" as compared with earlier measures introduced in the second quarter.

Mr Tsien was also upbeat about the bank's wealth management business, which saw income climb to a record in the first nine months of 2020. OCBC is looking to expand its onshore wealth operations in South-east Asian countries such as Malaysia, Mr Tsien noted.

UOB, which has a sizeable exposure to small and medium-sized enterprises, told The Business Times it is confident that its provisions should be strong enough to withstand further build-up of bad loans, particularly with automatic moratoriums unwinding in Singapore and Malaysia.

The bank's net profit for the latest quarter stood at S$668 million, down 40 per cent from S$1.12 billion a year ago, due to pre-emptive build-up of credit allowances. An additional S$339 million in allowance for non-impaired assets was set aside to strengthen provision coverage.

While the Q3 results may not demonstrate the true measure of distress, the overall impact "may not be as bad as feared", said Lee Wai Fai, UOB's chief financial officer.

Bloomberg Intelligence analyst Diksha Gera said the three banks overall reported "very encouraging numbers".

Provision levels are healthy and the Singapore government's stimulus "may help the banks ride the wave", she added.

The three lenders' share price gains on Thursday extended their rebounds from earlier in the week, after they had dipped to lows last Friday.

On Tuesday evening, the Singapore Exchange (SGX) said in a market update that the banks had averaged a decline in total return of 20.4 per cent over the first 10 months of this year.

This was closely in line with the median 20.6 per cent decline for the top quartile of globally listed banks by market value, SGX noted.

Meanwhile, short-term and more active investors as well as long/short traders were able to trade the relative price swings observed across the trio's stocks in October, the bourse operator added.