Singapore banks to face more chal­lenges next year

The Pak Banker - - Company& -

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.

OCBC's

share

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

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