Singapore banks this year face the challenging task of matching their earnings performance from last year, with a weak domestic economy and the prospects of global recovery clouded by a looming war in the Middle East, analysts said.
Pockets of positive signs have emerged in recent months but the economy, wounded by a recession in 2001, remains generally weak, placing Singapore in a vulnerable position should the world's major economies deteriorate, they said.
And that will likely have an earnings impact on DBS Group, United Overseas Bank (UOB) and Oversea-Chinese Banking Corp (OCBC), the city-state's three domestic lenders.
"In terms of operating environment, we think 2003 will be equally challenging," said Nancy Koh, associate director for financial services ratings at Standard & Poor's.
"In terms of top line growth, we don't expect that to register any significant improvements ... it is likely to remain subdued," she said.
The banks are still expected to turn profits this year but the key question is whether they will be able to match last year's figures.
"They are all very strong ... they are not losing money. It is just a question of whether it will be better than last year," said David Lum, a banking analyst at Daiwa Institute of Research.
Senior executives from UOB, which posted net profit of S$1.06 billion (US$609 million) for the year to December 2002 -- the biggest of all three banks -- were cautious on the bank's performance this year, citing the uncertain political situation in the Middle East.
"This year I think we'll be facing a lot of uncertainty worldwide. It's very difficult for me to predict what will happen this year because of the [possible] Iraq war," said Wee Cho-yaw, UOB's chairman and chief executive.
"I think our growth will be very minimal," he said of the bank's 2003 earnings outlook.
UOB's 2002 net profit rose 15.1 percent from higher interest and commission revenue as well as a bigger contribution from associate companies.
DBS Group, Southeast Asia's biggest lender, reported a smaller 1.9 percent increment in earnings to S$1.02 billion and management said it would concentrate on raising operational efficiency.
"Until we see near-term improvements in the environment, DBS will continue to focus on improving its operational and processing efficiency," Chairman S. Dhanabalan said.
In light of the sluggish economic conditions, the bank was also forced to set aside a bigger amount for provision charges totalling S$534 million, up 41 percent from a year ago.
"The current economic condition has dampened revenue and has required increases in provisions, thus holding back DBS' performance," Dhanabalan said.
OCBC, the smallest of the three banks, saw net profit drop 14.3 percent to S$666.71 million and senior management warned matching last year's performance would be tough.
"[This year] will no doubt be another challenging year for Singapore banks," said OCBC chief executive David Conner.
"Nothwithstanding this, OCBC will continue to focus on growing its revenue, improving its operating performance and enhancing returns to shareholders," he said.
The best bet now is to look beyond the highly saturated local market of four million where competition has increased sharply since the sector opened to foreign banks, analysts said.
"It is actually a saturated market and relatively mature. Going outside of Singapore is an avenue of growth for them and they have acknowledged that," Koh said.
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