Singapore banks are likely to report that their average net interest margins fell the most quarter on quarter in 18 years as interest rates weakened, while profits on the year are seen taking a hit from the impact of the Covid-19 pandemic and weak asset quality.
Uninspiring results could add to investor disenchantment with the lenders, the biggest in South-east Asia, after the Monetary Authority of Singapore capped their dividends last week, sparking a sell-off in their shares.
The market's focus when DBS Group and its two smaller rivals report results this week will be on any signs that the June quarter marked the trough for net interest margins, a key measure of profitability, as economies emerge from months of lockdown.
"We expect banks' profit to moderate over the near term due mainly to higher provisioning costs and low interest rates," said senior credit analyst Shao Keng Ang at Eastspring Investments.
Goldman Sachs analysts said in a report, referring to net interest margins: "We forecast a 19 basis point quarter-on-quarter average decline for the Singapore banks on the back of a collapse in Singapore short-end rates as well as lower interest rates in the regions that the Singapore banks operate in."
They added that the declines would be the biggest since 2002.
Every 10 basis point fall in net interest margins is estimated to have a 6 to 8 per cent impact on net profit.
Net interest margins of DBS, OCBC Bank and United Overseas Bank (UOB) are estimated at between 1.55 per cent and 1.64 per cent for the quarter, according to Refinitiv data.
Besides the impact of the global pandemic on tourism and retail businesses weighing on results, banks' earnings could also be hurt by larger-than-expected non-performing loans in the second quarter from generic sectors or as combined with commodities-related exposure.
This is further compounded by unemployment arising from a deep recession that could pose risks to mortgages and unsecured consumer loans, among others.
Second-quarter profit at DBS, which reports its results tomorrow, is set to rise nearly 3 per cent to $1.19 billion from a quarter ago but slump about 25 per cent on the year, according to the average estimate of five analysts, Refinitiv data shows.
Net profit for OCBC, which reports on Friday, is set to advance 40 per cent from a quarter ago, helped by higher trading income and gains from its insurance unit. On the year, analysts expect profit to fall 20 per cent.
Refinitiv data also shows UOB's quarterly profit is estimated to fall on the quarter and from a year earlier. UOB will release its results tomorrow.
REUTERS
