What to expect from DBS, OCBC, UOB

View of Singapore’s central business district.

Suhaimi Abdallah | Getty Images News | Getty Images

SINGAPORE – Shares of Singapore’s major banks surged ahead of the release of their third quarter results this week as the global economic recovery accelerates.

OCBC and UOB are expected to launch the third-quarter earnings season for Singapore-listed banks on Wednesday, while DBS is expected to report on Friday.

DBS Group Holdings, the largest of the three listed banks in Singapore, hit a new high of 52 weeks on Thursday. The stock climbed 25.9% this year on Friday.

The other two banks, Oversea-Chinese Banking Corp and United Overseas Bank, also moved closer to their 52-week highs. OCBC has gained around 17.3% this year, while UOB is up 18.4%.

All three banks beat the Straits Times benchmark, which has risen 12.5% ​​so far this year.

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Banks have been among the best performing sectors in global equity markets this year, said Geoff Howie, market strategist at the Singapore Stock Exchange.

“Interest rate expectations have been a key driver for international banking stocks in 2021,” Howie said in a report in mid-October.

The 10-year US Treasury yield has risen over the past month as markets have started to forecast more interest rate hikes than the Federal Reserve has indicated. It comes as the recovery in the US economy and disruptions to global supply chains drive inflation up.

Higher interest rates are generally good for bank profit margins. Rising rates also tend to indicate a strengthening economy, which may mean fewer defaults.

Singapore’s central bank manages monetary policy by fixing the exchange rate instead of the interest rate. As a result, national interest rates are influenced by world rates.

Income overview

Singapore’s three banks have announced improved earnings in recent quarters as the global economy recovers from the Covid-19 pandemic. Analysts said momentum is likely to continue.

Here’s what analysts expect from third-quarter banking reports, according to estimates compiled by Refinitiv on Monday:

Third Quarter Profit Estimates

Bank Net revenue Change from year to year
DBS SGD 1.57 billion 21.4%
OCBC SGD 1.02 billion -0.45%
UOB SGD 982.4 million 47.1%

“As in the previous quarter, we expect all banks to report robust (year-over-year) profit growth thanks to lower costs of credit,” said David Lum, analyst at the brokerage firm. Daiwa Capital Markets.

Credit costs refer to the amount of reserves that banks set aside for loan losses.

Like many banks around the world, Singapore’s lenders made these arrangements last year when Covid weighed on economic activity – but banks began to cut provisions this year as the global economy rebounded.

Lum said in an October report that wealth management could benefit Singapore’s banks, but trade and market-related revenues could come under pressure in the third quarter.

Greater China exposure

Greater China accounted for 30% of DBS loans in the first half of 2021, according to Krishna Guha, equity analyst at investment bank Jefferies. The figure for OCBC and UOB stood at 25% and 16%, respectively, he said in a September report.

Just over half of those Greater China loans came from Hong Kong, Guha said.

All three banks have enough headroom to withstand potential strains in their Greater China portfolio, the analyst said. But the lingering uncertainty could still hurt sentiment and prospects for future growth, he added.

For now, the dividend yield and a reasonable valuation would support Singapore bank stocks, Guha said.

Jefferies maintained its “buy” rating for all three banks.

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