Local banks cast a wide net before pond shrinks

PHOTO: Local banks cast a wide net before pond shrinks

SINGAPORE - The terrain may be uphill, but the three local banks are marching in step.

Despite markets slowing down at home and in the region, they are selling more loans than ever before and raking in higher fee income, their latest results show.

But there are some dark clouds on the horizon. Wealth management activity, or sales of products to the region's millionaires, is slowing - given the market volatility in June.

Mortgages, the single largest loan sector for the banks, is also easing as measures to curb over-leverage begin to bite. For the moment, investors are cheering.

Year to date, share prices of DBS Group Holdings, OCBC Bank and United Overseas Bank are up 18.2 per cent, 10.4 per cent and 11.2 per cent respectively, massively outperforming the benchmark Straits Times Index's 2.8 per cent rise.

The second-quarter results were especially impressive as loans grew 14-15 per cent amid economic slowdowns in Singapore, Greater China, India, Malaysia, Indonesia and Thailand.

As DBS chief executive Piyush Gupta put it on Thursday during the bank's results presentation, the branches are "selling all kinds of loans".

Mr Gupta also said the bank is not seeing any impact from China's slowdown.

DBS continues to record growth in its trade-finance business. "We're not seeing any stress in the portfolio . . . (and) don't anticipate issues," he said.

China's economy grew 7.5 per cent between April and June from a year earlier, the ninth quarter of slowdown.

Samuel Tsien, OCBC chief executive, on Friday said that the $10 billion loans growth in Q2 from Q1 (7 per cent on quarter) was broad-based, across all geographies and sectors.

The $10 billion came from trade finance, corporate Singapore and overseas countries, all one third each, he said.

At UOB, loans growth was also broad-based and across industries and territories.

For the quarter, UOB said Singapore grew the loan book at 3.4 per cent and the regional countries at 3.5 per cent. UOB's US dollar loans rose a faster 11.4 per cent.

Another theme for the second-quarter results was the stabilisation of margins.

The banks managed to hold their net interest margin steady from Q1 and their bosses are predicting no further falls for the remaining quarters, barring movements of one or two points.

Also bearing fruit during the quarter was the banks' overseas strategy, which is critical as the higher margins elsewhere make up for the slim ones at home.

OCBC said profits of its Malaysian and Indonesian units rose 8 per cent and 40 per cent year-on-year, respectively, in local currency terms.

Mr Tsien said the margin in Indonesia is 4.2 per cent and the bank is targeting 4.0 to 4.2 per cent.

UOB said that, for first-half 2013, its regional contribution rose to 42 per cent from 40 per cent while operating profits were higher at 9 per cent.

"Margins should increase over time, arising from regional contribution," said UOB chief executive Wee Ee Cheong. He added that Indonesia will be a big wealth-management market for UOB.

DBS's Hong Kong business did well, posting a record high income of $524 million for the quarter, but contributions from China, Taiwan, South-east Asia and India fell.

DBS's overall results, while exceeding expectations, were overshadowed by the fact that it failed to buy Bank Danamon Indonesia. That will push back its ambitions to expand in the region's largest country by at least five years.

"Danamon makes about $400 million (in profit) . . . it'd take about five years to get to that level," said Mr Gupta.

DBS will now have to slog it the hard way to gain traction in Indonesia, and it will redouble its efforts, said Mr Gupta.

Amid the robust numbers, the banks are already seeing a slowdown in mortgage sales and in marketing products to the wealthy.

Private bank customers are likely to be more subdued this quarter, after June's volatility, said Mr Tsien. Activity in June and July is lower, he said.

OCBC's private bank unit, Bank of Singapore, saw its assets under management rise 26 per cent to US$45 billion as at 30 June from a year ago.

New home loan applications are down 20 per cent yearon- year at OCBC, said its chief operating officer, Ching Wei Hong.

This year's home loans growth, expected in the low teens, will not be maintained beyond 2014, he said.

UOB's Mr Wee said he expects a 20 to 30 per cent drop in housing mortgage business: "For the immediate one or two years, the loan growth is still there. In the long run, that business will have some reduction in activity."

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