Surprises unlikely in S'pore banks' Q4 results: analysts

THE three local banks will be releasing their fourth-quarter results next Friday - on Valentine's Day - an unusual alignment but a coincidence at best, according to one banker.

While it may be a day of romance and passion for some, analysts say they expect the banks' earnings to be rather more prosaic, and surprises are unlikely.

Factors roiling the markets, such as tapering and worries over the deteriorating political situation in Thailand, started only in late December, and their impact is not likely to be reflected in the results.

DBS Group Holdings may present the best set of results for Q4, with double-digit profit growth from a year ago. OCBC Bank may have to contend with volatility from its insurance unit, while United Overseas Bank (UOB) could post the lowest net profit growth or even a slight decline, given its relatively larger exposure to Thailand and Indonesia.

Earnings drivers for the trio in Q3 - flat margins, better loans growth and flat credit costs with seasonal higher staff costs - should have continued into Q4, analysts reckoned.

"Singapore banks' share prices have slipped in 2014, more in anticipation of credit and liquidity strains spilling over from the emerging economies than on any concerns over a seasonally weak Q4," said CIMB research head Kenneth Ng.

"We expect the banks' Q4 2013 to be similar to Q3 2013 - flat net interest margins (NIMs), a pick-up in US dollar loans, muted credit costs growth, albeit with lower non-interest incomes and seasonally higher cost ratios," he said.

"Any positive surprises are likely to come in loan volumes," added Mr Ng.

His Q4 core net profit estimates are: DBS $868 million, up 14.2 per cent year on year; OCBC $688 million, up 3.7 per cent; and UOB $676 million, down 2.8 per cent.

Credit Suisse research analyst Anand Swaminathan also does not expect any big surprises.

"We expect overall sector profit to be down one per cent quarter on quarter but up 10 per cent year on year, mainly driven by a seasonal weakness in non-interest income," he said. "No other big surprises are likely."

Key earnings driver performance is likely to remain mostly stable, with flat margins quarter on quarter, a slightly better loan-growth performance driven by Singapore, continued cost discipline and flat credit costs, noted Mr Swaminathan.

His Q4 core net profit expectations are: DBS $859 million, up 13 per cent year on year; OCBC $719 million, up 8.4 per cent; and UOB $741 million, up 6.7 per cent.

At the results briefing, analysts will be keeping their eyes peeled on the resilience of the banks' strong loans growth last year, especially business loans, which have helped mitigate the slowdown in home loans.

Bank credit expanded 17 per cent last year, up from 2012's 12.7 per cent growth, despite a sharp drop in new mortgage sales.

Business loan growth of 22.9 per cent (2012: 18 per cent) was on the back of a strong gain in general commerce loans (2013: 32.4 per cent; 2012: 17.5 per cent), which picked up strongly in Q4, noted Ng Wee Siang, Maybank Kim Eng Singapore head of research.

"Dampening the effect was a decelerating consumer loan growth of 8.9 per cent in 2013 (2012: 15.0 per cent), which was dragged down by a slowing housing loan growth of 9.5 per cent (2012: 15.9 per cent); slowest in 4.5 years," said Mr Ng.

The big surge in general commerce was fuelled by US dollar loans for trade finance, reinforcing Singapore's position as the funding centre for the region.

"Indeed, the new mortgage loan growth is slowing every month, but that has not proved to be a dampener on overall credit growth at all," observed Mr CIMB's Mr Ng.

In the second half of last year, loan growth was increasingly driven by non-Singapore dollar loans, business loans and loans to fund trade finance activities, he said.

Mr Ng is concerned about trade loans should there be a significant slowdown in Asia, as most of the current loan growth opportunities lie in short-term, trade-financing type loans.

"In our opinion, a marked slowdown in Asian economies is more likely to impact the banks' earnings via a negative loan growth from trade loans (as some of these working capital requirements come off) and the corresponding evaporation of the non-interest income (such as trade fees and treasury income).

"We think that this is a trend to watch out for in the first half of 2014," said Mr Ng.

Another area of focus will be the outlook for margins and guidance on asset quality and growth in Asean markets.

"My sense is that improved margins won't come until 2016, as interest rates are not likely to go up until mid-2015," said Credit Suisse's Mr Swaminathan.

"It will be interesting to see whether DBS guides for a better NIM recovery (versus peers) in FY2014, driven by increasing demand for fixed-rate loans," he said.

For UOB and OCBC, he wants guidance on their Asean growth and asset quality.