The long-awaited comeback of the Singapore banks

IT'S safe to say that 2020 was an awful year for the Singapore banks. However, as we transit to a post-vaccine world, the long-awaited comeback of these cyclicals may finally be here. Despite the run-up in share prices over the past two months, we still find Singapore's banking sector an attractive place to be in as fundamentals begin to improve.

1) Easing loan loss provisions

For the FY2020, rising loan loss provisions was unsurprisingly the main culprit that dragged down earnings for the three local banks as they each set aside large amounts of reserves in preparation for the potential surge in bad loans arising from the pandemic. However, the good news is that given how the banks had front-loaded allowances in the first half of 2020, we believe that loan loss provisions have peaked and will gradually return to their normal levels over the next two years. This signals a turning point for the banks' earnings.