Singapore's Big Three Banks are due to announce fourth quarter earnings soon, with DBS kicking off with its report card this Friday.
Analysts have said they expect to see more write-downs to relieve sub-prime pressure.
However, they added that going into 2008, the performance will stabilise, thanks to the booming construction sector. When DBS, UOB and OCBC turn in their latest report cards, analysts will be looking closely at numbers related to the US sub-prime mortgage sector.
They are expecting to see further write-downs, taking the edge off the impact from last year's sub-prime and collateralised debt obligation (CDO) blow.
Yap Chee Meng, Asia Pacific Head of Finance, KPMG, said, "I would expect if the situation continues to deteriorate, there will be further write-downs, but it is impossible to estimate how much more...we have got to look at it in the proper context.
"Singapore banks, in terms of exposure, are relatively low in the context of the rest of the world. Looking at the banks over the last couple of months, they have disclosed the exposure that they have to the CDOs, and some of the banks have already made pretty conservative provisions.
"But the valuation model for making provisioning is largely affected by market sentiment and also what is taking place right now, and since the situation is becoming slightly worse than before, I would expect to see slightly more provisioning, but as to how much, I guess we have to wait for the banks to make their announcement."
DBS, OCBC and UOB last year reported that their total exposure to CDOs was just 1 percent of their assets.
According to some analysts, DBS may write down most of the S$275 million in its CDO portfolio that is exposed to US sub-prime.
OCBC has already written down some S$221 million of its S$270 million portfolio.
The sub-prime write-downs aside, analysts are confident the situation will begin to stabilise this year.
Ivy Tan, Associate Director, Standard & Poor's Ratings Services, said, "For 2008, there are a couple of challenges and bumps in the horizon, one of which is the possibility of a US recession.
"With the US recessionary pressure, that will certainly affect the Singapore economy given the high degree of openness, and that will translate into probably a challenging business environment...and again in terms of the lending activity for the banks in Singapore, that much will be impacted...so in terms of their earning and even in terms of their asset quality, the banks will feel some pressure.
"But S&P's view is that the three local banks will continue to manage, and overall in terms of core profitability, it should remain stable as a base case scenario. But there is probably going to be downward pressure."
Analysts have said that the booming construction sector will help to provide some stability for the Big Three.
According to a Dow Jones Newswires poll, DBS is forecast to book a 6.5 percent dip in fourth-quarter net income compared to a year ago. UOB is expected to see a drop of 5 percent and OCBC a fall of almost 14 percent. - CNA/ms
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