Singapore Banks Post Profit Declines on Mounting Provisions


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© Bloomberg. The DBS Group Holdings Ltd. logo is displayed atop Tower 3 of the Marina Bay Financial Centre in Singapore, on Wednesday, Feb. 12, 2020. The coronavirus outbreak rocked Singapore’s financial district after an infection at the country’s biggest bank prompted it to evacuate 300 workers.

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(Bloomberg) — DBS Group (OTC:) Holdings Ltd. and United Overseas Bank (OTC:) Ltd. posted second straight profit declines after setting aside more provisions for loan losses during the pandemic-fueled recession.

Singapore-based DBS saw net income fall 22% from a year earlier and UOB posted a 40% drop as a slump in lending income added to their woes, results for the three months ended June 30 showed Thursday. Still, chief executive officers of both banks signaled they can weather the economic storm, maintaining earlier guidance on credit costs.

Like their global peers, Singapore’s lenders are bracing for a wave of soured debts as the coronavirus crisis hammers companies and households. While a host of government relief measures have supported businesses, the central bank has indicated they won’t be extended and ordered the lenders to cap their 2020 dividend payouts to boost capital reserves.

At DBS, Southeast Asia’s largest bank, net income totaled S$1.25 billion ($913 million), beating the S$1.19 billion projected by analysts, as a drop in expenses softened the blow. UOB’s profit was S$703 million, missing the S$784 million estimated.

“Results were in line with expectations especially around provisions” which could be read as positive in light of recent declines in the stocks, said Kevin Kwek, a banking analyst at Sanford C. Bernstein in Singapore. “There were some modest positives such as cost cuts for both, to offset expected margin drops.”

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Kept Guidance

DBS maintained its guidance for total allowances of around S$3 billion to S$5 billion over two years, S$1.9 billion of which were taken during the first six months, CEO Piyush Gupta said in a presentation accompanying the results.

The bank’s allowance reserves, at S$3.8 billion, are 24% higher than the minimum requirement by the Monetary Authority of Singapore, Gupta said. DBS has an ongoing review of its cost structure, he said.

UOB’s credit costs are likely to remain around second-quarter levels, “with more preemptive allowances to cushion anticipated asset quality weaknesses,” CEO Wee Ee Cheong said. Like its larger rival, UOB also cut operating expenses, which fell about 8% from a year earlier.

Falling interest rates are also taking a toll on the banks by shrinking loan profitability. Both banks saw their net interest margins narrow more than 20 basis points from three months earlier. UOB’s net interest income declined 12% from a year earlier, and DBS posted a 5% drop.

Singapore’s economy plunged into recession in the second quarter amid restrictions to control the spread of Covid-19. Gross domestic product tumbled an annualized 41.2% from the previous three months, the biggest quarterly contraction on record.

Oversea-Chinese Banking Corp., Southeast Asia’s second-largest bank, will report its earnings Friday.

Other Highlights

  • DBS saw its net interest margin shrink to 1.62%, while UOB’s fell to 1.48%
  • At DBS, the cost-income ratio fell from a year earlier to 39%, while UOB’s rose to 46%
  • Wealth assets under management at DBS rose 7% and UOB’s climbed 9%
  • DBS’s non-performing loan ratio fell on quarter to 1.5% and UOB’s stayed at 1.6%
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(Updates with breakdown of results and CEO comments throughout)

©2020 Bloomberg L.P.

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