Singapore banks to face more challenges next year
SINGAPORE: Singapore banks have disappointed investors in 2010, with depressed interest rates impacting net interest margins.
Some analysts expect 2011 to present perhaps an even more challenging environment with headwinds from low interest rates and rising expenses. Analysts also have mixed views on the prospects of loans growth.
The only Singapore bank to have given positive returns to investors this year is OCBC. It overtook DBS in November as the largest bank in Southeast Asia by market capitalisation. OCBC's current market capitalisation is about S$32.71 billion, or about S$0.3 billion more than DBS and S$4.5 billion ahead of UOB.
price jumped after several analysts upgraded their ratings, following strong third-quarter results. But even under the long shadow cast by low interest rates, Singapore banks turned in a decent performance in 2010, recovering fully from the financial crisis of 2008, and gearing up to make new investments.
Their earnings were partly boosted by non-interest income and partly by a decline in loan provisions, which were above normal last year. Kenneth Ng, head of Singapore Research, CIMB Research, said: "Fee income did do well, provisions fell - and those two reasons were main reasons for 2010 (growth). All banks did better than expected, also because equity markets did well. All three banks had strong performances from trading related gains."
Experts are expecting banks to continue to do well in 2011, but they are likely to face road blocks - both new and old. Interest rates, which are near historic lows, will make it difficult for banks to deploy funds profitably. At the same time, staff costs are rising, and their high trading income this year may be tough to match in 2011.
Alfred Chan, director, Financial Institutions, Fitch Ratings, said: "Interest rates have been low since 2009 - it's already been two years - I think it has clearly impacted the banks in terms of margins. Because they are sitting on a lot of deposits, they can't do much lending, so margins have been gradually coming down.
"For interest rates, I think there's a bit less downside to interest rates because it's already at historic lows. So the downside to the bank's bottom lines is therefore that much lower. Actually, there is more upside if interest rates were to gradually increase again.
"And interest rates tend to be low to support an economic recovery. And to such time an economic recovery is more certain, I think interest rates may continue to be at lower levels." The three month Singapore Interbank Offer Rates, or SIBOR, is currently at about 0.44 per cent, down from around 0.51 per cent at the end of September. Interbank rates are expected to remain depressed, partly because of the recent quantitative easing measures adopted by the US. -PB News
SUKKUR: Muhammad Khalid Khan, G.M Regional Headquarters NADRA Sukkur addressing a press conference. -App