Banks' Combined Q3 Earnings Up 13%

Source : The Business Times, November 7, 2007

Loans growth, strong fee income help local lenders achieve decent profit rise

ROBUST economic growth and a booming property market are propping up the earnings of Singapore's three banking groups - at a time when charges relating to their collateralised debt obligation (CDO) holdings have caused a dent on profitability.

'We might face margin pressures going into the fourth quarter.'- Jeanette Wong

Operationally, loans growth and strong fee income helped the banks achieve decent rise in net profits for the third quarter.

Their combined net profit for the quarter rose 13 per cent from a year ago to $1.57 billion. OCBC, smallest of the three, achieved the biggest percentage rise of 22 per cent in net profit to $463 million. DBS Group Holdings, South-east Asia's largest lender, recorded an 11 per cent increase to $610 million, while United Overseas Bank (UOB) came in with an 8.2 per cent rise to $501 million.

Net interest income - or profit from loans and also the bank's core business - also rose the highest at OCBC, registering a 19 per cent increase from the year before to $565 million. DBS saw a 15 per cent increase to $1.05 billion, while UOB came in with a 4.4 per cent rise to $714 billion.

Customer loans grew the most at DBS, with a 23 per cent rise to a record $104.7 billion marking the 11th consecutive quarter of growth. The charge was led by corporate and SME loans in Singapore and Hong Kong, while Singapore housing loans also continued to grow strongly.

Housing loans - the largest single component in the loan book of each bank, comprising about one-quarter of total loans, grew the strongest at UOB. The bank's housing loans portfolio grew 21 per cent to $21.8 billion. DBS, the largest mortgage lender here, saw its home loans grow more slowly at 9 per cent to $26.5 billion, while OCBC's rose only 3 per cent to $18.6 billion.

But OCBC chief David Conner stated: 'We're very active in the market and we see pick-up in the loan outstanding. We see a pretty robust pipeline on the mortgage front.'

Net interest margins, which measure the difference between what the banks earn on loans and pay on deposits, declined at all three banks quarter on quarter. Chief financial officer of DBS, Jeanette Wong, also said that the bank will face pressures on their net interest margins, since Singapore interest rates are trending down. 'We might face margin pressures going into the fourth quarter,' she noted.

The banks' profits were given a boost by non-interest income, with all three banks putting up a good showing on that front as they benefited from more fees and commission. OCBC saw the highest growth, reporting a 35 per cent increase to $481 million, with strong contributions from stock-broking, wealth management, and foreign exchange income.

Yesterday, the banks' share prices rose amid a rebound in the broader market after Monday's sharp falls. DBS shares rose 0.5 per cent or 10 cents to close at $21.50, while UOB's share price rose 1.5 per cent or 30 cents to end at $20.60. OCBC closed 0.6 per cent or 5 cents higher at $8.90.