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Singapore banks enjoyed higher interest margins in 2018, but voice uncertainty for year ahead

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ALL three local banks enjoyed higher interest margins and either maintained or lowered their non-performing loan (NPL) ratios in 2018, but the general consensus is that challenges abound in year ahead as global uncertainties persist.

ALL three local banks enjoyed higher interest margins and either maintained or lowered their non-performing loan (NPL) ratios in 2018, but the general consensus is that challenges abound in year ahead as global uncertainties persist.

Against the backdrop of a rising interest rate environment, DBS Group Holdings, which has the largest amount of deposits as South-east Asia’s largest lender, benefited the most with net interest margin (NIM) rising 10 basis points to 1.85 per cent.

OCBC Bank’s NIM also edged up five basis points at 1.7 per cent for fiscal 2018, underpinned by higher margins in Singapore, Malaysia and China, while United Overseas Bank’s NIM gained five basis points to 1.82 per cent, in line with global rate hikes.

Across the board, non-performing loans comprised 1.5 per cent of each bank's customer loans. That marked an improvement of 0.2 percentage point for DBS from a year ago, and a 0.3 percentage point improvement for UOB. OCBC’s NPL ratio was unchanged.

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For the 12 months ended Dec 31, 2018, net profit for DBS rose 28 per cent to S$5.58 billion, as total income grew 11 per cent to S$13.18 billion. This came on the back of higher loan and fee income growth as well as higher NIM, which was partially offset by weaker income from its treasury markets segment.  

In addition, net profit increased for both UOB and OCBC as well, albeit at a slower pace. Both banks announced their fourth-quarter and full-year results on Friday morning.

UOB posted net earnings of S$4.01 billion for the full year of 2018, up 18 per cent from a year ago, as total income grew 6 per cent to S$9.12 billion, led by strong growth in net interest, and fee and commission income.

Separately, OCBC recorded a 11 per cent rise in full-year net profit to S$4.49 billion, as total income gained 2 per cent to S$9.70 billion. This was driven by record earnings from the group’s banking operations which rose 22 per cent year on year, led by income growth, disciplined cost control, and lower allowances, said OCBC.

However, OCBC also unexpectedly reported its lowest quarterly profit in nearly two years, with a 11 per cent decline in net profit to S$926 million for its fiscal fourth-quarter. The group said results were dragged down by fall in contributions from its insurance arm, Great Eastern Holdings.

Looking ahead, DBS chief executive Piyush Gupta expects income growth on the back of mid single-digit loan growth, and continued NIM improvement for 2019.

"The structural improvements we have made to the profitability of our franchise - a shift towards higher-returns businesses, deeper customer relationships and more nimble execution - put us in good stead to navigate the challenges of the coming year," added Mr Gupta when DBS announced its results at the start of the week.

UOB deputy chairman and chief executive Wee Ee Cheong noted that the bank will stay disciplined in pursuing sustainable growth and ride on South-east Asia’s growth amid global uncertainties.

"For our customers across the region, we will continue to invest in our omni-channel capabilities, and to forge ecosystem partnerships…" Mr Wee said.

Similarly, OCBC group CEO Samuel Tsien noted that global economic growth is expected to slow on concerns of geopolitical tensions, subdued market sentiment, and rising policy risks in advanced economies.

"In spite of the uncertain outlook, we are confident that our focused strategy, strong capital and funding base, and disciplined cost control will allow us to continue to prudently expand our franchise in our key markets and support our customers," added Mr Tsien.