Singapore’s top banks are reporting earnings this week. Here’s what to expect

Singapore’s top three banks are expected to report another quarter of lackluster financial results this week as ultra-low interest rates cap margins and the coronavirus pandemic continues to ravage the global economy.

The country’s largest bank, DBS Group Holdings, and its smaller rival United Overseas Bank are scheduled to release their second-quarter earnings report on Thursday. The last of the trio, Oversea-Chinese Banking Corp, is set to report results on Friday.

The financial report cards come as the Singapore economy entered a technical recession in the second quarter following the implementation of a partial lockdown — which the government called a “circuit breaker” — to slow the spread of the coronavirus disease or Covid-19.

Here are what analysts are expecting from the three banks this week:

• Low interest rates globally would squeeze net interest margins or NIMs, a measure of lending profitability, by 11 to 26 basis points compared to the previous quarter, said Krishna Guha, an equity analyst at Jefferies.
• DBS is likely to record the sharpest drop in NIMs, while OCBC is expected to see the least decline, Guha said.
• Singapore’s “circuit breaker” will hit fees from credit cards, wealth management and investment banking, said Rui Wen Lim, equity research analyst from DBS.
• The banks could set aside “significantly higher allowances” compared to last year as they prepare for potential loan losses, said David Lum, analyst from Daiwa Capital Markets.  

All in, net profit at the three Singapore-listed banks could fall by between 19% and 33% in the second quarter, according to Refinitiv estimates. OCBC is expected to be hit the least because its insurance arm likely recorded gains in its investment portfolio, analysts said.

The subdued set of earnings reports could further dampen the attractiveness of the three Singapore-listed lenders. Share prices of the three banks were hit last week after the country’s financial regulator called on banks to limit dividend payouts for 2020.

Investors have traditionally favored Singapore banks for yield, which is now under threat given the cap on dividends and uncertainties surrounding the virus outbreak.

Thilan Wickramasinghe from brokerage Maybank Kim Eng is one analyst who prefers staying away from banks for now.

“Significant uncertainty exists in terms of the length and depth of the pandemic,” he wrote in a note last week.

“Moreover, with a precedent now being set where social interests take priority over shareholder interests, the risks of dividend caps lasting beyond 2020 cannot be ruled out,” he added. “We prefer to wait until better value emerges for the sector.”

Fitch Ratings last month warned that Singapore’s banks are facing a weakening operating environment in their home base and other Asian markets where they operate. In addition to Singapore, other economies the banks have presence in include Hong Kong, Malaysia and Indonesia. 

 “We expect the operating environments to which the banks are exposed to deteriorate as a result of the coronavirus pandemic, which will put pressure on asset quality, profitability and capital,” said the ratings agency.