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OCBC joins Singapore lenders facing slowdown in home loans

OCBC Bank, like the other two Singapore lenders, is feeling the chill of last year's property cooling measures with its mortgage book "reduced visibly" for the first quarter of 2019.

"Our housing loans outstanding have reduced visibly on quarter and on year," chief executive Samuel Tsien said during the bank's results announcement on Friday. "Housing demand is there but it's not as strong as before."

OCBC's total housing loans stood at S$64.8 billion at March 31, 2019, up from S$64.5 billion at end-2018. It was S$64.2 billion at March 31, 2018. Mr Tsien said the Singapore home loans contraction was "less than a billion" (in Singapore dollars) year on year.

In addition, Mr Tsien said OCBC, whose home loan market share remains over 20 per cent, isn't keen to fight for more of the pie based on price.

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"Sometimes, the pricing is not worth our participation in the market," he said.

Sibor (Singapore interbank offered rate) and SOR (swap offer rate) have been rising steadily since 2016, wrote Phillip Securities analyst Tin Min Ying last week.

However, they appear to be consolidating near the 2 per cent mark since the start of this year, she said, suggesting that interest rate pressures on housing loans may be capped at this level.

Nonetheless, the slowdown in housing loan growth is "a red flag" for the Singapore banking sector's loan business, where housing loans make up 30 per cent of total domestic loans in Singapore, Ms Tin said.

United Overseas Bank (UOB) told The Business Times last week that "Singapore mortgage loan growth was flat quarter on quarter, and expected to be low single-digit for this year as the impact of cooling measures is still being felt".

The bank's housing loans rose to S$68.7 billion at end-March 2019, up from S$68.4 billion at end-2018. It was S$66.5 billion a year ago.

In contrast, DBS Group Holdings saw its mortgage book shrink for the first time in years for the first quarter of 2019 in results posted last month.

DBS's total housing loans fell to S$74.4 billion as at March 31, 2019, down from S$75 billion as at end-2018. It was S$73.5 billion on March 31, 2018. The Singapore home loans contraction of "half a billion dollars" was due to last year's round of government property curbs, DBS chief executive Piyush Gupta said.

But overall, the local banks saw a strong first quarter amid modest loans growth and better lending margins. 

OCBC's first-quarter net profit came in at S$1.23 billion versus S$1.11 billion a year earlier, beating the S$1.16 billion average estimate of five analysts, according to data from Refinitiv.

Last month, DBS also beat market estimates to post a record quarterly profit, while UOB's results were in line with expectations.

All three banks saw gains in net interest income on the back of loan growth. 

OCBC's net interest income grew to a record S$1.53 billion, up 8 per cent from a year earlier, while customer loans rose to S$259 billion, up 5 per cent from a year ago. 

UOB's net interest income increased 8 per cent to S$1.59 billion on the back of broad-based loan growth of 12 per cent.

DBS' net interest income rose 9 per cent in Q1 to S$2.31 billion, while its loan book gained 5 per cent from a year ago.

The banks also saw better lending margins, with OCBC's net interest margin (NIM) up nine basis points to 1.76 per cent from a year ago due to higher interest rates and loan repricing in Singapore. Likewise, DBS' NIM was up five basis points to 1.88 per cent.

The exception was UOB, which saw NIM compressed five basis points to 1.79 per cent.

CMC analyst Margaret Yang said in a May 3 note it's "worth noting that UOB's NIM has been trending lower for the past four quarters, compared to a gradual increase for its rival DBS".

But the outlook for lending profitability is being clouded by lower interest rate expectations following the Fed's policy shift at the end of last year.  

"We do expect a slight improvement in NIM in the second quarter, but whether we'll see that in the third and fourth quarters will depend on what the macro interest rate environment will be," OCBC's Mr Tsien said. 

He added: "We continue to believe the prospect of rising interest rates is not there. The cutting of interest rates could be delayed by a quarter or so, may be to next year instead of the end of this year."