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    Banks Expected to Post Higher Q4 Earnings as Interest Rates Rise

    Singapore banks are expected to post better quarterly earnings figures on the back of improvements in the economy, wealth, and asset-quality management.

    Bankbazaar Singapore – February 5, 2018

    SINGAPORE: The recent years have not been great for major Singapore banks as weakness in the oil and gas industry led to bad loans that hurt their bottom line. For the third quarter of last year, DBS had reported a 23% profit drop over the same period in the previous year, missing market expectations amid lingering asset-quality concerns.

    But fresh reports now indicate that the country’s three major lenders, Oversea-Chinese Banking Corp (OCBC), DBS, and United Overseas Bank (UOB) may have ended 2017 on a positive note. A survey from Bloomberg has shown that for the first time in about four years, the trio could post double-digit growth figures, for the fourth quarter of 2017. The three banks are expected to report their quarterly earnings this week and the next.

    Factors such as an increase in interest rates, a rise in wealth, and lower impairment charges are expected to be the main drivers of growth.

    A slew of recent macroeconomic figures has shown that Singapore’s economy is back on the growth track. Along with an increase in interest rates in the US, this is pushing the earnings from lending for banks. In January, the interbank exchange rate SIBOR had hit a record high before easing. A stronger and stable SIBOR will favour banks and improve the overall market sentiment.

    A report from Morgan Stanley had forecast growth of loans to be as much as 8% for OCBC in 2017 with economic improvements. UOB and DBS are estimated to record 6% and 7% loan growth. A separate report from RHB Securities further said that loans could continue to increase in 2018.

    Another key factor that is expected to help the banks is the increasing wealth in Asia-Pacific. UBS had recently noted that new money in the region had risen 12% in the final quarter of last year.

    Lenders are also taking steps to make inroads into more lucrative markets. Following the acquisition of Barclays’ wealth business in 2016, OCBC bought similar units from National Australia Bank. DBS, on its part, took over certain units from Australia and New Zealand Banking Group and Societe Generale. Analysts point out that both OCBC and DBS are witnessing a rise in fees from their wealth management business.

    But perhaps the crucial factor that is going to have a major impact on earnings is the provisioning of funds for impairment charges. As noted initially, DBS had reported dismal figures in the third quarter but this meant the bank was taking aggressive strategies to deal with its non-performing assets.

    Looking ahead, analysts are also positive on certain local market factors that could influence the banking sector this year. Demand for loans is expected to continue as factors such as collective sales and corporate investments remain strong.  

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