This item originally appeared on finews.asia.
Singapore banks’ first quarter results appear set to show a tug-of-war between a boost from higher interest rates and a hit from global market turmoil.
Market volatility over the January-to-March period – driven by Russia’s invasion of Ukraine and higher interest rates – is set to weigh on results from Singapore’s three banks: DBS, UOB and OCBC, analysts have said. But that could be offset by the core banking business as increases in interest rates are expected to start boosting net interest margins, analysts said.
JPMorgan as harbinger
Earlier this month, J.P. Morgan Chase’s earnings release likely presaged the theme for banks globally: A hit to investment banking, trading and wealth management income due to the market turmoil. Globally, many potential equity and credit fund-raisings have been put on hold due to the market turmoil.
The U.S. bank reported its gross investment banking revenue in the first quarter tumbled 35 percent from the year-earlier period. Non-interest revenue dropped 12 percent in the January-to-March period from the year-earlier period, partly on lower investment fees, losses on legacy equity investments, and net investment securities losses in the corporate segment, J.P. Morgan reported.
Hitting a wall in the first quarter of 2022 would mark a sharp swing from Singapore banks’ broadly positive 2021. DBS, for one, reported 2021 net profit climbed 44 percent from 2020, hitting a record, while UOB reported a 40 percent increase and OCBC posted a 35 percent rise.
“We expect banks to report relatively modest first quarter earnings as risk-off sentiment had weighed on wealth management and treasury income amid heightened market volatility,” CGS-CIMB said in a research note last week.
CGS-CIMB said meaningful expansion of net interest margins is likely only later in the year, although the quarter is likely to see an around 1 basis point increase.
“Loan demand appeared mixed across the banks; corporate demand likely sustained but housing loans were flattish,” the brokerage said, noting credit card fees may be a highlight, with travel-related spending starting to recovery. Countries globally are easing Covid-related border controls.
Potential for disappointment
Maybank also tipped potential disappointment for the banks’ results due to weak trading income and mark-to-market losses on investment securities. The core businesses were expected to remain resilient, however, Maybank said in a research note.
“From a timing perspective, a bulk of delivery could be skewed towards the second half, as loan re-pricing gets reflected and customer investments accelerate from regional re-opening,” the Malaysian bank said.
All three banks are set to report their first quarter updates on Friday.
For UOB, CGS-CIMB projected its first quarter net profit would fall 5 percent from the year-ago quarter, as the bank likely showed strong loan growth from property funds and financial institutions, as well as traders using larger credit lines as commodity prices rose.
Daiwa was more upbeat, forecasting net profit for the quarter would rise as much as 8 percent from the year-earlier period.
CGS-CIMB forecast DBS’ first quarter net profit would fall 15 percent from the year-ago quarter, weighed by weak wealth and treasury income.
OCBC’s first quarter net profit likely fell 20 percent from the year-earlier quarter, with some weakness in loan demand as corporate clients turned cautious and housing loan demand slowed, the brokerage said, adding the bank could see some mark-to-market losses from its insurance subsidiary Great Eastern.