THE third-quarter results of the three local banks showed some things in common - they continued to defy predictions by posting better-than-expected profits despite sharply higher bad loan provisions.
And amid slower economic growth, loans didn't shrink all that much; in fact it was up at DBS and United Overseas Bank (UOB) and saw a mild contraction at OCBC.
What the results did throw up was the respective strengths of each bank. DBS performed well all round; its strong operating performance was broad based. OCBC's wealth management sales and insurance unit came through and helped the bank post higher earnings, more than mitigating a contraction in its loan book.
UOB enjoyed much stronger loan growth, registering healthy gains from both Singapore and overseas. But it was not enough to offset the steep fall of eight basis points in its net interest margin.
All three banks said higher bad loan provisions were mainly due to more distress at their oil and gas (O&G) customers. Said OCBC's chief executive Samuel Tsien: "The problem in the O&G sector for our portfolio has not broadened but it has deepened, with those companies that are under stress continuing to be under stress."
OCBC said O&G non-performing loans (NPLs) amounted to S$1.1 billion as at Sept 30, representing 0.53 per cent of total customer loans; as at end June, the sector's NPLs made up 0.45 per cent.
Leading the pack in setting more allowances for bad loans was DBS; it more than doubled.
NPLs also shot up; the NPL ratio rose 44 per cent to 1.3 per cent from 0.9 per cent a year ago.
DBS said half of its O&G support services customers are weak, up from one-third in June.
UOB said the 37 per cent increase in group NPL from a year ago to S$3.5 billion was due mainly to O&G and shipping.
The fundamental strength of the local banks came through in Q3 even as the economy deteriorated as they managed to sell more loans and wealth management products even as overall credit shrank.
Last month Minister for Trade and Industry Lim Hng Kiang warned that the economy is expected to grow by the lower end of a 1-2 per cent growth range, and that "some quarters of negative growth" cannot be ruled out, although the government does not expect an outright recession.
Bank loans fell year on year for the 12th straight month in September to S$603.43 billion, down 0.8 per cent compared to S$608.28 billion in September 2015, according to the Monetary Authority of Singapore on Monday. It was only very slightly lower than the previous month's S$603.9 billion.
All three banks grew their mortgage books, probably from taking market share given their lower cost of funding relative to foreign banks.
DBS said loans grew 5 per cent in constant currency terms from a year ago from regional non-trade corporate loans and taking market share in Singapore housing loans. This was partially offset by a 14 per cent drop in trade loans.
UOB surprised with a stronger 7 per cent rise in loans with gains in building and construction, manufacturing, financial institutions and mortgages.
At OCBC where loans shrank, down 2 per cent, it was due to the more than halving of trade loans to China. OCBC's bills receivable, a proxy for trade loans, fell to S$5.9 billion at end September 2016 from S$11.3 billion a year ago.
Still OCBC managed to overcome loan and margin contraction with strong gains in wealth management sales and higher insurance profit to post a 5 per cent earnings growth. Its non-interest income rose 25 per cent. As a share of the group's total income, wealth-management contributions were 28 per cent for the quarter, compared to 22 per cent in the year before.
OCBC's private bank Bank of Singapore grew assets under management by 20 per cent to US$62 billion from a year ago.
Profit from life assurance was S$164 million in Q3, a spike from the S$62 million a year ago.
DBS also did well in non-interest income, up 24 per cent, and growth was broad-based growth. Wealth management grew 47 per cent, investment bank fees shot up 74 per cent, while card fees and transaction services fee rose 15 per cent and 11 per cent respectively. Other non-interest income increased 32 per cent from higher trading income and gains on investment securities.
This article was first published on November 1, 2016.
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