Singapore banks beat estimates but signal caution in weak markets

SINGAPORE: Singaporean lenders DBS Group and OCBC gave cautious outlooks on Friday (April 29) after reporting a 10 percent decline in quarterly profit amid weaker economic growth, though their performances still beat estimates from the analysts.

While rising interest rates and the full reopening of Singapore’s trade-dependent economy after lockdowns during the pandemic are good news for banks, inflation risks weigh on their outlook.

“We expect profitability to rise further as upcoming interest rate increases boost margins,” said Eugene Tarzimanov, senior credit officer at Moody’s Investors Service, referring to DBS, OCBC and smaller rival United Overseas Bank. (UOB). “A key risk to our stable credit outlook is a potential increase in inflationary pressure.”

Shares in DBS, Southeast Asia’s largest bank, rose 4 percent, while OCBC rose 3.6 percent. The broader market gained 1 percent.

Net profit at DBS fell to S$1.8bn in January-March from a record S$2bn a year earlier. The net profit was above an average estimate of S$1.63 billion from six analysts, according to Refinitiv data.

OCBC, ranked second, posted a first-quarter net profit of S$1.36 billion, down from S$1.5 billion a year earlier, but also higher than the median estimate of S$1.2 billion.

Both banks have built some of Asia’s biggest wealth management businesses over the past decade, with both warning of weakness in the lucrative segment due to volatile markets.

At DBS, wealth management fees fell 21 percent in the quarter, while wealth management revenue at OCBC fell 26 percent.

UOB also posted a 10 percent drop in net profit, but fell short of market estimates. Its shares fell 1 percent.

Singapore’s banks benefited last year from a strong recovery in markets previously affected by the pandemic and economic growth of 7.6 percent. This year, the central bank expects only 3 to 5 percent growth.

Earlier this week, global bank Standard Chartered beat first-quarter earnings expectations and signaled a strong outlook, while HSBC reported an unexpected hit to its capital.

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