S'pore Banks Falter On Market Volatility

Source : The Business Times, May 08, 2008

The combined earnings of the three Singapore-listed banks fell in the first quarter as trading losses and lower investment income offset gains from continued strong lending growth.

But the banks said their loan books are still seeing healthy growth and long-term earnings prospects remain positive, especially for their main lending business.

At the same time, they said there are unlikely to be further write-downs on investments in collateralised debt obligations (CDOs), as most of the value of these investments has already been provided for.

Analysts, however, expect the pace of loans growth to slow by about half this year compared with last year, though it should remain above 10 per cent, they say.

DBS Group, the biggest of the three lenders, saw the fastest loans growth, with net customer loans expanding 21 per cent from a year earlier and 5 per cent over the quarter to $114.2 billion at end-March.

United Overseas Bank (UOB), the second-largest lender, reported the slowest loans growth. Its net customer loans rose 19 per cent over the year and 2 per cent from end-December to $94.4 billion at end-March.

DBS chief financial officer Jeanette Wong said yesterday the bank expects loans growth to moderate from last year's 'exceptional' pace of 25 per cent, but that falling below 10 per cent expansion 'would be a stretch, given the strong growth in the first quarter and our pipeline'.

Leng Seng Choon, an analyst at DMG & Partners Securities, said in a note yesterday that he expects UOB's loans growth to slow to 11 per cent this year from 20.5 per cent in 2007, but believes loans expansion 'will still drive net interest income'.

The banks were keen to put to rest any lingering doubts over their remaining investments in CDOs.

'We do not expect any further provisions for CDOs to be significant in the coming quarters,' said Ms Wong at the DBS results briefing yesterday.

'The CDO problem is behind us,' said OCBC Bank chief executive David Conner at its results briefing yesterday.

As analysts expected, DBS's net interest margin - the difference between what the bank earns on loans and pays on deposits - suffered more than that at the other two banks from falling interest rates here.

As the largest of the three lenders, DBS is the most vulnerable to falling interbank rates due to its large base of low-interest rate savings deposits. The bank can do little to lower the rates it pays on these deposits, even as falling interbank rates mean it collects less from the loans it makes.

Trevor Kalcic, an analyst at ABN Amro, said in a note on DBS yesterday that he remains 'cautious' on net interest margin pressure from low interbank rates and an expected slowdown in lending growth.

But he said DBS's move to raise its general allowances for loans as it expands its loans book is 'a good prudent measure'.

He added that all three Singapore banks 'should be insulated from the second-round effects of the sub-prime crisis, slowing economies and tighter lending standards, as exposure to CDOs for the banks has always been relatively low'.

Total net profit at the three banks for the first quarter slipped 2 per cent from a year earlier to $1.75 billion.

DBS and OCBC reported a dip in net profit, while UOB's net profit grew 2 per cent. Non-interest income at all three banks fell from a year earlier, dragging down overall income growth.