Singapore banks to post weaker earnings in 2009

Channel News Asia
Singapore banks to post weaker earnings in 2009
By Rachel Kelly, Channel NewsAsia | Posted: 07 November 2008 2054 hrs

SINGAPORE: The lower third-quarter earnings reported by Singapore's three banks were largely in line with analysts' expectations.

All three lenders booked lower profits, with DBS reporting a 38 per cent on-year slide on Friday. UOB saw a 5 per cent dip, while OCBC reported a 13 per cent decrease in net earnings.

Although some loan growth was seen, it was not enough to outweigh losses, and the loan sector is expected to be slow going forward.

Analysts said more losses can be expected as the banks may need to provide for further credit losses and lower fee income from their wealth management businesses.

Ritesh Maheshwari, senior director, Financial Institutions, Standard & Poor's, said: "We have seen consistent decline quarter-on-quarter this year. I don't see why it shouldn't continue to the fourth quarter as well. So, fourth quarter should be weaker than the third quarter and should take down the full-year numbers."

Singapore banks are also expected to be affected in terms of lending, and both DBS and UOB have said they are expecting to see much slower loan growth.

Maheshwari said: "I'm afraid the banks' fortunes are linked to that of the economy and since the economy is said to be in recession, economic activity is affected. Banks' businesses will also be affected, both in terms of lending and non-lending.

"So we expect the earning pressure to remain and probably go down further from this point – even the credit provisioning might take a bit more from this. I don't think there is a brighter side appearing so soon."

DBS announced on Friday that it would lay off 900 employees in an attempt to cut costs, and some said other banks could take similar measures in the months ahead.

"In this environment, there is pressure on earnings. I would expect banks to take cost rationalisation very seriously. Different banks have different tools to deploy to minimise the impact on their net profits," said Maheshwari.

However, Standard & Poor's still maintains that Singapore banks are among the strongest in the region and it will not be downgrading their ratings.

- CNA/so