SINGAPORE (BLOOMBERG) - The worst may be over for Singapore's three biggest banks.
A stronger economy, higher interest rates and rising wealth is expected to boost income at DBS Group Holdings, Oversea-Chinese Banking Corp and United Overseas Bank. After several quarters hit by bad loans, a Bloomberg survey shows they're poised to post double-digit profit growth for the three months ended Dec 31 - the first time all three will do so since 2014.
DBS, the largest lender in Southeast Asia, will report earnings on Feb 8, followed by OCBC and UOB on Feb 14.
Here's what to watch for:
SMALLER PROVISIONS
The trio posted lower profit a year ago mainly because loans to the offshore energy services sector were going bad. DBS's aggressive classification of nonperforming assets between July to September - which led to the steepest drop in profit since the 2008 financial crisis - means that's clearing up now.
Impairment charges at DBS will fall 51 per cent on-year to S$225 million, according to analysts at Goldman Sachs Group Inc, led by Melissa Kuang. Goldman's also forecasting lower provisions for OCBC and UOB.
HIGHER RATES
The banks are being helped by Singapore's faster-than-expected economic growth and rising US interest rates, which are pushing up local borrowing costs. Solid economic expansion means OCBC may see loan growth of 8 per cent on-year in 2017, DBS 7 per cent and UOB 6 per cent, Morgan Stanley's Nick Lord estimates.
The double whammy of stronger demand and rising rates allowed the banks to charge more for loans, boosting net interest income. The three-month Singapore interbank offered rate hit a decade-high in January, and while it has dipped since then the impact will probably linger as local lenders typically adjust borrowing costs only after a few months.
WEALTH MANAGEMENT
Rising wealth in Asia is another factor likely to support the fourth quarter results of the Singapore banks.
UBS Group AG, the world's largest wealth manager, reported Jan 22 that net new money in Asia-Pacific grew 12 per cent to 10.1 billion Swiss francs (S$14.4 billion) last quarter, beating its other key geographies.
To tap into this US$19 trillion market, DBS acquired assets from Societe Generale SA and Australia & New Zealand Banking Group while OCBC bought National Australia Bank's wealth business in Singapore and Hong Kong, following its acquisition of similar units at Barclays Plc in 2016.
Fee income from the wealth business is rising at DBS and OCBC, according to Jonathan Koh, an analyst at UOB Kay Hian, contributing to increasing profits.
Estimates (net income) DBS: Seen rising 32 per cent to S$1.2 billion.
OCBC: Seen rising 21 per cent to S$956 million.
UOB: Seen rising 19 per cent to S$876 million.
