Singapore banks still faces challenges ahead
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.