The three major Singapore banks may have gotten past the build-up in bad loans from the oil and gas sector by setting aside billions of Singapore dollars combined, but economic uncertainties are expected to persist through 2017 may hinder growth.
The three banks, DBS Group Holdings, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB), reported their fourth quarter earnings this week and were all hit by the continued troubles among oil and gas support services firms.
While the banks' management shared the sentiment that bad loans formation from this sector will slowdown in 2017, they guided for a modest growth in loans this year given the uncertain economic environment that has seen companies and individuals hold back spending.
As well, efforts by the Organisation of the Petroleum Exporting Countries (OPEC) and other major producers led by Russia to trim nearly 1.8 million barrels per day from global markets in the first half of the year has supported prices above US$50 (S$70.84) a barrel.
Speaking on CNBC's Squawk Boxon Thursday, Krishna Guha, equity analyst at Jefferies & Company, said given that the banks' growth guidance "hasn't been anything spectacular", it is not yet time for investors to buy into Singapore banking stocks.
However, a firmer US and China may lift prospects for the three banks, which are among the largest lenders in Southeast Asia.
"Given that Singapore is an open economy, those things will definitely help… The government is more opened to venture capital firms, so investors are coming here in a bigger way. It's about tapping those segments and grow the balance sheets from there," Guha said.
But sounding a more pessimistic tone, S&P Global Ratings credit analyst Ivan Tan said in a note on Wednesday that Singapore is only at the early stages of a credit cycle downturn, and things are likely to get worse in 2017 and 2018.
"Sluggish loan growth and higher credit costs, offset by higher net interest margins, will culminate in modest to flattish profit growth," said Tan, who forecast the loan books for the banks to grow 3 to 5 per cent in 2017.