09 A good year for Sin­ga­pore’s banks

Singapore Business Review - - CONTENTS -

With OCBC putting in place safe­guards and con­tin­gency mea­sures to deal with the ef­fects of the is­sues re­lated with the oil and gas sec­tor, Sin­ga­pore banks look set for an up­beat rhythm in 2018, with profit mar­gins on an up­ward trend on the back of ris­ing in­ter­est rates and healthy loan growth. DBS Group Re­search men­tioned that whilst Sin­ga­pore banks have had a good run in 2017 with one of the best sec­tor per­for­mances to date with col­lec­tive ap­pre­ci­a­tion at about 30%, the volatile per­for­mance of the oil and gas sec­tor have dented this pos­i­tive out­look.

How­ever, val­u­a­tions would likely drive up in 2018, ac­cord­ing to DBS, with the Sin­ga­pore In­ter­bank Of­fered Rate (SIBOR) rally kick­ing off, the re­cov­ery in the oil and gas sec­tor at the tail end of 2017, a healthy loan port­fo­lio that could be boosted fur­ther by the city-state’s rel­a­tively up­beat GDP growth at 3%, and the banks’ abil­i­ties to keep a clean as­set qual­ity trend.

Ac­cord­ing to the DBS re­port, net in­ter­est mar­gin will con­tinue to im­prove with three in­ter­est rate hikes from the US Fed­eral Re­serve ex­pected on top of el­e­ments in­clud­ing com­pe­ti­tion and the rise in fund­ing costs out­side of Sin­ga­pore op­er­a­tions.

Healthy loan growth

Loan growth, on the other hand, is re­cov­er­ing and is ex­pected to con­tinue to do so in 2018 at a rate of about 7% to 8%. RHB Se­cu­ri­ties an­a­lyst Leng Seng Choon noted that re­cent ac­tiv­ity in res­i­den­tial prop­erty en bloc sales is a con­trib­u­tor to loans ex­pan­sion. Mean­while,uob and OCBC are set for a pos­i­tive tra­jec­tory with OCBC hav­ing a sus­tained strong non-in­ter­est in­come fran­chise.

On the other hand, UOB is un­der­pinned by a re­cov­ery in the prop­erty mar­ket, given the bank’s share of prop­erty-re­lated loans.

DBS banks’ branch con­sul­ta­tion pods

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