atans1

S&P: Tough year for S’pore and regional banks

In Banks, Economy, Property on 20/02/2014 at 4:14 am

Lower economic growth prospects and tighter credit conditions could create a tougher operating environment for the banking sector here and in the region, said a report by Standard & Poor’s (S&P) late last week.

S&P expects S’pore’s GDP) growth to fall to 3.4 % this year, from 3.7% last year.

The report also notes that corporate and household indebtedness has been on the rise here. The situation could worsen this year, in anticipation of interest rates rising; higher borrowing costs amid rising. See DBS’s CEO’s tots below* and related post https://atans1.wordpress.com/2014/01/16/why-banks-tested-for-50-plunge-in-property-prices-and-other-wonderful-tales/

Related articles: The three local banks posted their reports last week too and for quick snap-shots (not the usual ST or BT fluff)

http://sbr.com.sg/financial-services/news/5-highlights-you-should-know-about-uobs-2013-results

http://sbr.com.sg/financial-services/news/find-out-what-badly-hurt-ocbcs-fy13-results

http://sbr.com.sg/financial-services/news/dbs-braces-itself-looming-30-35-drop-in-mortgage-loan-applications

Charts on banks’ loans etc

http://sbr.com.sg/financial-services/news/10-charts-prove-singapore-banks-mixed-finish-2013

Cheap way of owning UOB shares

https://atans1.wordpress.com/2011/09/05/haw-par-rediscovered-yet-again/

Update at 6.ooam:

South-east Asia’s three biggest lenders, DBS, Oversea-Chinese Banking Corp and United Overseas Bank, have seen their share prices rise this week after posting solid results last Friday. Common trends in the fourth quarter were better margins, trade finance-driven loan growth, seasonally softer treasury earnings and no asset quality weakness, CIMB noted.

UOB has been the star performer this week, gaining 3.5 per cent, while OCBC has risen 2.3 per cent and DBS 0.4 per cent.

UOB, despite being the smallest of the trio, has been particularly impressive with its fee income and regional strategies, CMC Markets Analyst Desmond Chua told TODAY.

“In terms of fee income, it has performed relatively well while the market has been lacklustre, in part due to a higher interest outlook. Its diversification to grow in regional emerging markets has also helped it maintain loan growth despite weaker mortgage demand in Singapore,” he said.

“On the other hand, OCBC’s share price might have been affected by the prospect of its overpriced acquisition of Wing Hang Bank in Hong Kong while DBS hasn’t been able to impress with its fee-based revenue in recent times despite aggressively attacking this space,” he added.

UOB’s net interest margin, which is the highest among local banks at 1.72 per cent full-year, is another advantage for the lender, Voyage Research’s Deputy Research Head Ng Kian Teck added. “UOB has historically been good on this front, and it means the bank can churn the most value out of every dollar loaned — that’s what’s attracting the investors,” he said.

All three banks ended last year on a positive note, with their fourth-quarter net profit rising between 6 and 11 per cent on the back of strong growth in net interest income.

The banks have also continued to solidify their regional presence, drawing more revenue from overseas than before.

….

“Their return on equity is healthier vis-a-vis the other industries, which are facing greater margin pressure due to higher wages. But the banks have been able to control this issue better.”

CMC Markets’ Mr Chua is also bullish, saying: “I’m looking at the banking space being an outperformer this year even though interest rates are bound to rise. Their tactical diversification across this region allows them to tap into Indonesia’s emerging affluent segment, for example.

Update at 5.15pm:Can Singapore safely deflate its property market? http://www.cnbc.com/id/101409247

————————

*DBS Bank chief executive Piyush Gupta expects home prices to fall by 10-15 per cent this year – more than the 10 per cent forecast by property consultants – but says that this decline would not make a material impact on the bank’s loan book. Speaking at DBS’s Q4 results briefing, he said it is likely that the prices of high-end homes will slide 15 per cent, and that for lower-end ones, by 10 per cent.

As for the higher interest rates expected with the shrinking of monetary stimulus policy by the US, he said he was not expecting it to have any effect on DBS. “The Singapore portfolio is really driven on income considerations . . . As I’ve said before, the pressure will likely start coming when unemployment rises – more than when property prices change.” Singapore’s unemployment rate is now at a low 1.8 per cent.

Mr Gupta said: “All our stress tests in the past have shown that we can easily withstand a 20 per cent reduction in Singapore property prices without material impact on our portfolio. We stress-test (for a) 20 (per cent fall in property prices), but don’t expect it to happen; our stress tests are always calibrated to go off the charts. My own sense is that there will be a correction of 10-15 per cent.”

He noted that the market was already stabilising and that the froth was running off, but that if this continued, the government would roll back some of the macro prudential measures. Sales of new mortgages have plunged 30-35 per cent at DBS, and by 40-50 per cent at OCBC Bank as a result of the stricter loan rules.

Mr Gupta likened the Singapore property market to that of New York and London, where prices held up even during the financial crisis between 2008 and 2012. While prices in the rest of the US fell by about a third, prices in New York slipped by only 10 per cent. It was a similar situation in London, another city where the demand is not dependent on the state of the domestic economy.

Mr Gupta said he expects regional money buying properties here to also put a floor under prices. With the slower sales, DBS’s $49.1 billion mortgage book is likely to grow by $2 billion to $2.5 billion this year, down from $3.5 billion last year and $5 billion the year before that, said Mr Gupta.

OCBC Bank chief operating officer Ching Wei Hong said of the new mortgage sales having declined across the board: “That’s expected, given all the cooling measures that have been imposed. We’ve built up a healthy inventory level. The inventory drives the growth of (the loan) book, going into 2014 and 2015. Beyond 2015 H2 and 2016, if conditions remain the same, we’ll see a bit of tapering in that period.”

(BT article last Saturday)

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  1. George Soros Bet $1.3 Billion (11 percent of his fund’s holdings.) The Stock Market Will Fall
    http://www.huffingtonpost.com/2014/02/18/george-soros-stock-market_n_4810434.html?utm_hp_ref=world&ir=WorldPost
    His good friend Jim Rogers – “Avoiding Chinese Real Estate”
    http://jimrogers-investments.blogspot.sg/2014/02/avoiding-chinese-real-estate.html

  2. We know it will be a can of worms when pa consolidates the numbers.

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