After being stung by the market turmoil at the end of last year, Singapore’s banks are bracing for fresh challenges from China-US trade tensions and a slowing world economy.
“We expect ongoing global uncertainties to continue to weigh on business sentiment in the near term,” United Overseas Bank Ltd (UOB, 大華銀行) CEO Wee Ee Cheong (黃一宗) told reporters yesterday in Singapore after fourth-quarter results missed estimates.
Oversea-Chinese Banking Corp (OCBC, 華僑銀行) CEO Samuel Tsien (錢乃驥) said that loan growth would slow this year and he predicted more choppiness in Asian markets as geopolitical risks put a strain on the global economy.
Photo: Bloomberg
The banks’ muted outlooks illustrate how Singapore — Southeast Asia’s finance and shipping hub — is getting slammed by mounting trade disputes and China’s economic slowdown.
Adding to lenders’ challenges are easing expectations of interest rate increases, which typically support loan margins.
“Trade tensions affect the whole regional market and trade flows have reduced,” Tsien said at a news briefing.
Some corporate clients have built up stocks ahead of any tariff increases and are taking longer than expected to run them down, he said, adding that China’s slowdown has reduced liquidity.
Data this week showed Asian economies from Japan to South Korea are hurting from the slump in global trade. Singapore’s exports fell the most in more than two years last month.
OCBC and UOB reported higher net interest income in the quarter, thanks to growth in loans. However, the outlook for lending profitability is being clouded by the prospect of slower interest rate increases in the US and elsewhere.
UOB’s net interest margin declined from the previous quarter, while OCBC’s was unchanged.
OCBC blamed much of its profit drop on a slump at its insurance unit, which booked mark-to-market losses on investments due to the market turbulence. It also added US$205 million in loan allowances — about four times as much as in the previous quarter — suggesting loan quality might be deteriorating.
Larger rival DBS Group Holdings Ltd (星展銀行) also relied on lending for profit last quarter as the market rout hit wealth and trading, results showed on Monday.
Still, CEO Piyush Gupta said in an interview that wealthy clients who “froze” at the end of last year are more active this quarter.
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