Why It Matters

Banks ready to ride out storm

For the most part of the past year, local banks have outshone their more illustrious counterparts in Europe and the United States, reporting solid earnings and coming up with the cash to make major acquisitions.

But if recent earnings by Singapore's major financial institutions - DBS, OCBC Bank and United Overseas Bank (UOB) - are anything to go by, even local banks are not immune to headwinds in the financial industry.

OCBC Bank posted a 14 per cent drop to $856 million in net profit for the three months to March 31, below a $899 million average forecast from a Bloomberg poll, while UOB's first-quarter net profit was a 4.4 per cent dip to $766 million, close to the $767 million forecast.

DBS had the best performance, beating the $1.04 billion average estimate with a net profit of $1.2 billion, even though it was a 5 per cent drop for the period.

Excluding a one-off gain, DBS' earnings were up 6 per cent.

These results were decent by most metrics. In fact, compared with banks in the US, they looked good indeed.

Goldman Sachs Group, the worst performer in the Dow Jones Industrial Average this year, posted a 56.3 per cent drop in first-quarter earnings to US$1.2 billion (S$1.6 billion) - falling for the fourth straight quarter.

Morgan Stanley's profit was down 54.4 per cent, while other big banks, such as Citigroup and Bank of America, also reported falling profits in the period.

But as the global economy continues to stutter, with rising fears over recession-like conditions, even the strongest of banks will start to wobble.

That's to be expected as the performance of banks is closely tied to the markets they belong to.

The good news is that local banks continue to have strong balance sheets and ample amounts of cash.

This, if nothing else, will allow them to ride out the storm that is coming.

A version of this article appeared in the print edition of The Straits Times on May 05, 2016, with the headline 'Banks ready to ride out storm'. Print Edition | Subscribe