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BANK EARNINGS

Singapore banks cautious about H1 with outbreak hitting customers

About 10% of their total loan portfolio exposed to sectors hit by Covid-19; 2019 earnings meet or surpass expectations

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The three banks - DBS, OCBC and UOB - grew their top and bottom lines for 2019 and raised their dividend payouts from a year ago.

Singapore

SWEPT into fresh uncertainty from the virus outbreak, Singapore banks are cautious over the next three to six months, given that about 10 per cent of their total loan portfolio is seen to be exposed to vulnerable sectors for now.

The trio wrapped up the full-year 2019 results season meeting or exceeding market expectations with their record showings, and raised their dividend payout from a year ago.

But with questions marks over how the novel coronavirus will test global supply chains and international travel amid a stronger economic integration with China today, the lenders warned that the virus outbreak will hit segments in the direct line of fire, such as tourism and retail, as well as manufacturers that are already reporting higher costs in the scramble to find supplies.

Shares of the three banks closed lower on Friday. Those of DBS fell two Singapore cents to S$25.08: OCBC ended two cents lower to S$11.02, and shares of UOB were down 19 cents to S$25.68.

DBS posted a 14 per cent rise in net profit for the fourth quarter to S$1.51 billion from a year ago, reflecting broad-based business momentum. Its quarterly dividend per share rose from 30 Singapore cents to 33 Singapore cents. On a full-year basis, it recorded a 14 per cent jump in net profit to S$6.39 billion.

OCBC's net profit grew 34 per cent to S$1.24 billion in its fourth quarter, driven mainly by wealth management, higher income from trading, sale of investment securities and properties and its insurance franchise. It upped its dividend to 28 Singapore cents a share from 23 Singapore cents a year ago. For the full year, its net profit was 8 per cent higher at S$4.87 billion.

UOB saw its net profit for its fourth quarter rise 10 per cent to S$1.01 billion from the year-ago period, driven by growth in net interest income and trading and investment income. It is proposing a dividend of 55 Singapore cents and a special dividend of 20 cents per share for the period. This is up from 50 Singapore cents and a special dividend of 20 cents for the year-ago period. The bank's full-year net profit grew 8 per cent to S$4.34 billion.

On Friday, UOB chief Wee Ee Cheong warned of "dark clouds", with the bank having de-risked in Q4 in North Asia and Singapore, which means in part reviewing more closely any financing renewals.

Still, the bank was the first to put out a S$3 billion relief package to signal to its viable customers that it would accommodate any cash flow issues in this period, said Mr Wee. "I'd rather go out fast," he added, to send a signal that the bank would aim to back businesses that will be able to tide through this period.

The bank's Singapore peers have also followed suit with a whole raft of relief measures, which, to be clear, can also mean higher credit costs in certain cases of loan restructuring.

OCBC chief executive Samuel Tsien said on Friday that the impact of the virus outbreak would be "significant" for the first half of this year, and that any better performance in the second half of the year would "just about offset" the weakness in the first half of 2020.

DBS chief Piyush Gupta also said earlier that the hit on the services sector would stretch beyond three to four months, reflecting a more "permanent" demand loss.

The bank's total portfolio for this sector in Singapore, Hong Kong and China is about S$20 billion, with the majority of it in Singapore. Within this portfolio, 90 per cent of them are large and "very resilient" companies, he said.

UOB guided on Friday that of its exposure in these vulnerable sectors, most of them are large corporates in Hong Kong. Its exposure to small and medium-sized enterprises exposure comes mainly from the region, including in Singapore.

The Singapore banks are also projecting tepid loan growth, amid a lower-for-longer rates environment.

Still, Singapore banks are also in effect gunning for a V-shaped recovery that could kick in next year, taking into account that the risks are driven by a single event, albeit a virus outbreak of a global nature. With that, the Singapore banks are also forecasting a marginal uptick in credit costs for now.

DBS' Mr Gupta said that the bank's general provisions over the year have been "very robust" as it had earlier set aside a cushion for issues such as the US-China trade war and the slowdown in Hong Kong. Likewise, Mr Tsien said the better credit quality now amid "prudent portfolio actions" last year could cushion credit costs related to the virus outbreak.

UOB noted that the virus outbreak may accelerate a shift and diversification in the supply chain to the benefit of Asean. Mr Wee said: "The world is more connected than ever before - and we are in a region with immense long-term potential."

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