After being stung by the market turmoil at the end of last year, Singapore's banks are bracing themselves for fresh challenges from the trade tensions between China and the US, as well as a slowing world economy.
"We expect global uncertainties to continue to weigh on business sentiment in the near term," said United Overseas Bank (UOB) chief executive officer Wee Ee Cheong yesterday, after the bank's fourth-quarter results missed estimates.
OCBC CEO Samuel Tsien said loan growth will slow this year and he predicted more choppiness in Asian markets as geopolitical risks pressure the global economy.
The banks' muted outlooks illustrate how Singapore, South-east Asia's finance and shipping hub, is getting slammed by mounting trade disputes and China's economic slowdown.
Adding to lenders' challenges are easing expectations of interest-rate increases, which typically support loan margins.
"Trade tensions affect the whole regional market and trade flows have reduced," Mr Tsien said at a news briefing.
Some corporate clients have built up stocks ahead of any tariff increases, and are taking longer than expected to run them down, he added. China's slowdown has also reduced liquidity, he said.
Data this week showed Asian economies from Japan to South Korea are hurting from the slump in global trade. Singapore's exports fell the most in more than two years last month.
Both OCBC and UOB reported higher net interest income in the quarter, due to growth in loans.
But the outlook for lending profitability is being clouded by the prospect of slower interest rate increases in the United States and elsewhere. UOB's net interest margin declined from the previous quarter, while OCBC's was unchanged.
OCBC blamed much of its profit decline on a slump at its insurance unit, which booked mark-to-market losses on investments due to the market turbulence.
The bank also added $205 million in loan allowances - about four times as much as in the previous quarter - suggesting loan quality may be deteriorating.
"OCBC's weak results came from practically every part of the business, coupled with a significant jump in its non-oil non-performing loans," Mr Marcus Chua, an analyst at Nomura Holdings in Singapore, said in a report. UOB disappointed investors who were anticipating improvement in its net interest margin, he added.
OCBC shares closed 1.56 per cent lower yesterday, and UOB slid 1.54 per cent.
Their larger rival, DBS Group Holdings, also relied on lending for profit last quarter as the market rout hit wealth and trading, results showed on Monday. Still, CEO Piyush Gupta said in an interview that wealthy clients who "froze" at the end of last year are becoming more active this quarter.