What to anticipate from DBS, OCBC, UOB

ATMs of the three banks listed in Singapore: OCBC, DBS and UOB.

Munshi Ahmed | Bloomberg | Getty Images

SINGAPORE – Singapore’s three largest banks could see a boost in profitability this year after a challenging 2020 as economic activity rebounds due to the city-state’s relative success in fighting the pandemic.

This better outlook has led some analysts to be more optimistic about Singapore banks ahead of their financial reports. The banks are expected to outline the business outlook for this year along with their fourth quarter results.

The city-state’s largest lender, DBS Group Holdings, will be the first to post a profit on Wednesday. Smaller peers Oversea-Chinese Banking Corp and United Overseas Bank will release their earnings on February 24th and 25th, respectively.

Singapore-listed banks are usually preferred by investors for their constant dividends. But like many bank stocks around the world, they fell out of favor early last year as many countries were put under lockdown to contain the spread of Covid-19.

“We said goodbye to very negative banks in Singapore at around the same time last year and then moved to a somewhat positive view,” Harsh Modi, JPMorgan’s co-head of financial research in Asia ex Japan, told CNBC’s Street Signs in late January Asia “.

Modi said the quality of banks’ assets – which relates to risks associated with loan repayment – held up “much better” than expected.

That is partly due A surge in economic activity in Singapore, where “everyone is in the know,” he added.

Estimates for the fourth quarter of 2020

Singapore experienced the worst economic recession ever in 2020, when its economy contracted 5.8% year over year, according to government estimates. The contraction was below official projections for a decline between 6% and 6.5%.

The Southeast Asian economy is expected to grow between 4% and 6% this year as the number of daily Covid infections has slowed. As of Sunday, the city-state has confirmed more than 59,600 cases and 29 deaths, data from the Ministry of Health showed.

All three banks listed on the Singapore Stock Exchange raised billions of Singapore dollars in funds in the first nine months of 2020 to cushion potential losses following the economic blow from the pandemic.

Analysts said banks likely increased their certificates further in the final quarter of 2020.

This is what analysts expect the testimony of the banks for the fourth quarter according to estimates by Refinitiv:

Banks Net result Risk provision Earnings per share
DBS SGD 1.0 billion (-32.4% yoy) 587.33 million SGD SGD 0.410
OCBC 941.86 million SGD (-24.2% yoy) 310.33 million SGD SGD 0.204
UOB 708.68 million SGD (-29.6% year-on-year) 484 million SGD SGD 0.375

Possible easing of the dividend cap

According to analysts, the profitability of the three banks in Singapore should improve this year.

Better growth prospects and continued economic support in Singapore and other regional economies would support credit demand, said Thilan Wickramasinghe, analyst for broker Maybank Kim Eng.

“We believe the upside risks will be significantly higher over the course of 2021,” he wrote in a report in late January. The broker raised DBS and OCBC from “Sell” to “Buy” and UOB from “Sell” to “Hold”.

Wickramasinghe said the country’s financial regulator could start easing dividend restrictions this year.

Last July, the Monetary Authority of Singapore (MAS) asked banks to cap dividends due to uncertainties caused in part by the pandemic. The announcement dropped bank stocks.

Wickramasinghe said in his report that the European Central Bank and the Bank of England are among the regulators that have eased some restrictions on dividend payments.

“In Singapore, too, we believe that regulators could take a similar cautious path,” said the analyst.

Last year, the MAS urged banks to limit their total dividend per share in 2020 to 60% of the dividends distributed in the previous year. Wickramasinghe said the regulator could increase the percentage to 80% in 2021.

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