Singapore banks beat estimates but signal caution in weak markets

A DBS bank logo is seen in Taipei, Taiwan, January 28, 2022. REUTERS/Ann Wang

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SINGAPORE, April 29 (Reuters) – Singaporean lenders DBS Group (DBSM.SI) and OCBC (OCBC.SI) offered cautious outlooks on Friday after reporting a 10% drop in quarterly profit amid slower economic growth. weak, although its performance exceeded analysts’ estimates. .

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

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

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Shares of DBS, the largest bank in Southeast Asia, rose 4%, while those of OCBC rose 3.6%. The broader market (.STI) gained 1%.

DBS’s net profit fell to S$1.8 billion ($1.3 billion) in January-March from a record S$2 billion 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 the largest wealth management businesses in Asia over the past decade, with both warning of weakness in the lucrative segment due to unstable markets.

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

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

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

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

MARKET RISKS

DBS CEO Piyush Gupta warned of lingering risks from rising commodity prices, higher inflation and subdued economic growth.

“When you put all this together, it’s pretty clear that the outlook for next year is going to be hard to forecast,” he told reporters.

DBS derives most of its profits from Singapore and Hong Kong, while OCBC’s key markets are Singapore, Greater China and Malaysia.

Earlier this year, DBS and UOB separately acquired the retail assets sold by Citibank (CN) in the Southeast Asian and Taiwanese markets.

Earnings at DBS, OCBC and UOB increased from the fourth quarter, while credit costs remained low. UOB’s profit was lower than in the fourth quarter.

“The market will also look ahead for signs and see the start of benefits in improving margins and decent credit growth of 8% to 9%,” said Kevin Kwek, senior analyst at Sanford C. Bernstein.

($1 = 1.3868 Singapore dollars)