Singapore's largest lenders are expected to report year-over-year growth in net income for the quarter ended Sept. 30, as they stand to benefit from a slower-than-expected contraction in margins and improvement in fee income.
Net income at DBS Group Holdings Ltd., the country's largest bank by assets, is projected to increase 7.7% in the third quarter to S$2.80 billion from S$2.60 billion a year ago, according to consensus estimates data from Visible Alpha, a part of S&P Global Market Intelligence. The net income of Oversea-Chinese Banking Corp. Ltd. (OCBC) is estimated to rise 6.1% year over year to S$1.92 billion, while that of United Overseas Bank Ltd. (UOB) is forecast to grow 10.1% to S$1.52 billion.
"Upcoming third-quarter results should show slower than previously expected [net interest margin] contraction and a pickup in fees with a backdrop of solid asset quality," Thilan Wickramasinghe, head of research Singapore and regional head of financials at Maybank Research, wrote in an Oct. 14 note.
DBS is scheduled to announce its third-quarter financial result on Nov. 7, while UOB and OCBC will announce their results Nov. 8.
Singaporean banks continue to benefit from stable margins even as the US Fed expectedly cut rates in September. The lenders previously said they were preparing for lower rates by increasing their long-term deposits and investing in high-quality commercial assets. Although the Monetary Authority of Singapore primarily uses currency as its main monetary policy tool, the country's interest rates are influenced by global monetary policy due to its open, trade-dependent economy.
Margins, noninterest income
DBS' third-quarter net interest margin (NIM) is estimated to drop 6 basis points year over year to 2.13%, the data showed. OCBC's NIM is likely to drop to 2.19% from 2.27%, while UOB's NIM is forecast to fall to 2.04% from 2.09%.
While the Singapore overnight rate average and other benchmark lending rates saw a slight rollover in the third quarter, "the pace of moderation remains gradual, which suggests that any tapering in the banks' NIM may remain measured," Yeap Jun Rong, market strategist for online broker IG, wrote in an Oct. 29 note.
The banks should see growth in noninterest income, particularly in wealth management, due to a conducive market environment, Maybank's Wickramasinghe said.
In addition, an increase in the banks' noninterest income is expected to support their bottom-line performance, the data showed.
DBS' noninterest income in the third quarter is projected to increase to S$1.92 billion from S$1.69 billion a year ago. UOB's nonineterest income is forecast to grow to S$1.13 billion from S$1.03 billion, while that of OCBC is likely to rise to S$1.18 billion from S$970 million.
China stimulus
Singapore banks are also likely to benefit from China's recent stimulus measures, Wickramasinghe said.
The Chinese government has announced stimulus measures, including reducing lenders' reserve requirement ratio and policy rate cuts, to reduce borrowing costs and boost economic growth. The measures, according to Wickramasinghe, may have positive impacts on Singapore banks' loans and profitability, similar to that of Chinese stimulus measures in 2009 and 2015.
"For the upcoming third-quarter earnings, our focus will be on whether the banks are seeing or expecting impact from the Chinese government's stimulus (potentially positive, in terms of fee income or reduced credit stress, or negative, if more borrowers will be enticed to fund onshore in China where interest rates are lower)," said Michael Makdad, senior equity analyst at Morningstar.
