DBS will kick off the earnings reporting season for Singapore banks on Friday. The set of numbers from the three major local banks will be closely-watched given concerns over the impact of the US sub-prime mortgage woes.
Overall, analysts say they are expecting to see healthy earnings from the Big Three.
Singapore banks have come under the spotlight amid the US housing credit crisis.
They have been closely scrutinised for their exposure to collaterised debt obligations, or CDOs.
CDOs are securities backed by assets, from housing mortgages to corporate loans.
Credit Suisse has warned that profit could decline by as much as 40 percent on-quarter if the banks decide to include provisions on these in their third-quarter earnings.
But other analysts say it may actually be a positive move to include those numbers.
Thilan Wickramasinghe, Analyst - Banks and Financials, CLSA, said: "That certainly is a wild card. Nobody knows how much provisioning that the banks will bring to their profit and loss accounts.
"I don't expect it to be as significant as what the market is discounting at the moment... You see this in the US banks as well - as soon as the banks came out with their sub-prime exposure, their provisioning numbers, the bank stocks actually reacted positively.
"So I think it's the same sort of effect... that the market is looking for the Singapore banks."
Of the three local banks, DBS has the highest absolute exposure at US$1.5 billion.
Analysts say even if there was a 50 percent markdown on its asset backed securities, it would result only in a 5 percent impact to its full-year earnings.
Most analysts say while there is some uncertainty due to the provisions that the banks may make for their CDOs, the business fundamentals in the third quarter remained sound and therefore core earnings will stay strong.
A poll of analysts showed they expect a 3 per cent net profit increase year on-year for DBS. This would work out to earnings of about S$573 million.
For UOB, the forecast is for a 12 percent increase on-year (S$519m), and for OCBC a 15 percent climb to S$438 million.
David Lum, Senior Analyst, Daiwa Institute of Research, said: "Net interest income will be very strong because I think the margins are stable, loan growths is accelerating, the fee income which could be volatile, could be hit by the uncertainty in the third quarter.
"But on the other hand, most businesses are still doing very well in Singapore. So that could actually surprise on the upside.
"The major risk on the expense side is that we have a very tight labour market, we have intense competition for talent. So certainly there will be pressure on expenses, but banks have learnt to manage that situation fairly well."
UOB's results will be out on October 30 and OCBC's on November 6. - CNA/ch
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