What to expect from DBS, OCBC, UOB

View of the Singapore Central Enterprise District.

Suhaimi Abdullah | Getty Photographs Information | Getty Photographs

SINGAPORE — Shares of Singapore’s prime banks jumped within the lead-up to their third-quarter earnings launch this week as the worldwide financial restoration features momentum.

OCBC and UOB are scheduled to kick off third-quarter earnings season for Singapore-listed banks on Wednesday, whereas DBS is predicted to report on Friday.

DBS Group Holdings, the biggest of the three Singapore-listed banks, hit a contemporary 52-week excessive on Thursday. The inventory has climbed 25.9% this yr as of Friday.

The opposite two banks, Oversea-Chinese Banking Corp and United Overseas Bank, have additionally inched nearer to their 52-week highs. OCBC has gained round 17.3% this yr, whereas UOB has risen 18.4%.

All three banks have crushed the benchmark Straits Times Index, which rose 12.5% to this point this yr.

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Banks have been among the many strongest performing sectors in inventory markets globally this yr, stated Geoff Howie, market strategist on the Singapore Trade.

“Rate of interest expectations have been a key driver of worldwide financial institution shares in 2021,” Howie stated in a report in mid-October.

The yield for 10-year U.S. Treasury rose during the last month as markets started pricing in more interest rate hikes than what the Federal Reserve has indicated. It comes as a restoration within the U.S. financial system and disruptions to international provide chains push up inflation.  

Greater rates of interest are usually good for the revenue margins of banks. Rising charges additionally are inclined to level to a strengthening financial system, which can imply fewer mortgage defaults.

Singapore’s central financial institution manages monetary policy through setting the exchange rate — as an alternative of rate of interest. Because of this, home rates of interest are influenced by international charges.

Earnings preview

The three Singapore banks have reported improved earnings in the last few quarters as the worldwide financial system recovers from the Covid-19 pandemic. Analysts stated the momentum will seemingly proceed.

Here is what analysts expect from the banks’ third-quarter report playing cards, in response to estimates compiled by Refinitiv as of Monday:

Third-quarter earnings estimates

Financial institution Web revenue 12 months-on-year change
DBS SGD 1.57 billion 21.4%
OCBC SGD 1.02 billion -0.45%
UOB SGD 982.4 million 47.1%

“As within the earlier quarter, we anticipate all banks to report strong earnings progress (YoY) on decrease credit score prices,” stated David Lum, an analyst with brokerage Daiwa Capital Markets.

Credit score prices check with the quantity of reserves that banks put aside in anticipation of mortgage losses.

Like many banks globally, the Singapore lenders made these provisions final yr when Covid weighed down financial exercise — however the banks began winding down the provisions this yr as the worldwide financial system bounced again.  

Lum stated in an October report that wealth administration might do properly for the Singapore banks, however buying and selling and market-related revenue may come beneath strain within the third quarter.

Larger China publicity

Larger China accounted for 30% of DBS loans within the first half of 2021, in response to Krishna Guha, fairness analyst at funding financial institution Jefferies. The determine for OCBC and UOB stood at 25% and 16%, respectively, he stated in a September report.

Barely greater than half of these Larger China loans was from Hong Kong, stated Guha.

All three banks have ample buffer to face up to potential stresses of their Larger China portfolio, the analyst stated. However lingering uncertainty might nonetheless harm sentiment and future progress prospects, he added.

For now, dividend yield and cheap valuation would assist Singapore financial institution shares, stated Guha.

Jefferies has maintained its “purchase” score for all three banks.

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