Sin­ga­pore banks still faces chal­lenges ahead

The Pak Banker - - COMPANIES/BOSS -

Sin­ga­pore banks spent 2015 bound by slow growth chains and they will not likely break free in 2016. When Sin­ga­pore banks rang in the new year, they did so with a lot of trep­i­da­tion and head-shak­ing res­ig­na­tion as most in­di­ca­tors point to a tepid, if not ter­ri­ble, 2016. Earn­ings are ex­pected to mod­er­ate, loan growth will re­main lack­lus­tre and in­creas­ing cor­po­rate lev­er­age will fur­ther add fear to an al­ready badly shaken Sin­ga­pore bank­ing sec­tor.

The malaise in 2015 should con­tinue to ex­tend to this year, and earn­ings will be mod­er­ated as Sin­ga­pore banks grasp at straws when it comes to grow­ing their rev­enues. An in­crease in net in­ter­est mar­gin (NIM) could be on the cards, but even this will be blunted by ris­ing fund­ing costs and pos­si­bly lower non-loan as­set yields. Given th­ese fac­tors, Sin­ga­pore bank earn­ings will grow a tepid 6 per­cent in 2016, says Sue Lin Lim, an­a­lyst at DBS, down from an ex­pected 15 per­cent earn­ings growth in 2015. "Rev­enues are ex­pected to grow at a slower pace for Sin­ga­pore banks in 2016," says Lim."With loan growth likely to stay in the low sin­gle dig­its, topline growth will be slower. Non-in­ter­est in­come is un­likely to ex­cite as well and may be volatile de­pend­ing on mar­kets, and to some ex­tent, be the wild­card to earn­ings. As we exit the be­nign credit cy­cle, credit costs will start to ac­cel­er­ate."

"If the ex­cite­ment of the NIM spike for the Sin­ga­pore banks cools off, there leaves hardly any driv­ers for growth in 2016. Judg­ing from the trends we have seen in 2015, we be­lieve that even with the Fed rate hikes, there is not much room for NIM to rise sig­nif­i­cantly," she adds.

Slug­gish loan growth will not only con­tinue to pum­mel Sin­ga­pore banks' rev­enues, but Lim says their non-in­ter­est in­comes will also re­main de­pressed amid the chal­leng­ing macro-en­vi­ron­ment. "We have al­ready seen wealth man­age­ment in­come mod­er­at­ing as cus­tomers have turned cau­tious and are switch­ing to de­posits in­stead of in­vest­ment re­lated prod­ucts which trans­lates to lower wealth man­age­ment fees earned," says Lim. "We ex­pect sim­i­lar trends to per­sist in 2016 un­til the risk-on sen­ti­ment dis­si­pates.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.