SINGAPORE: Singapore’s three local banks chalked up record-breaking profits last year on the back of higher interest rates, but uncertainties around rate cycles and global growth may crimp earnings moving forward, analysts said.
DBS – the first of the three local lenders to release earnings results on Feb 13 – said its fourth-quarter net profit soared 69 per cent year-on-year to hit a new record of S$2.34 billion. This blew past analysts’ estimates of S$2.16 billion and marked a second straight quarter of record-breaking profits.
For the full year, net profit grew 20 per cent to S$8.19 billion – also a record performance.
UOB and OCBC followed up with their report cards last week.
UOB’s core net profit for the fourth quarter rose 37 per cent to S$1.4 billion, beating analysts’ forecast of S$1.2 billion. Including one-off expenses such as the acquisition of Citi’s consumer banking businesses in parts of Asia, quarterly net profit was S$1.15 billion, up 13 per cent from a year ago.
For the full year, core net profit increased 18 per cent to S$4.82 billion, while net profit gained 12 per cent to S$4.57 billion after taking into account the one-off expenses. Both are new record highs.
Over at OCBC, fourth-quarter net profit rose 34 per cent from a year ago to S$1.31 billion, missing a S$1.6 billion estimate based on analysts polled by Bloomberg.
Full-year net profit was up 18 per cent to a new high of S$5.75 billion.
After ending 2022 on “a solid note”, the three banks are set to improve their profitability further in 2023, said Mr Eugene Tarzimanov, vice-president and senior credit officer at Moody’s Investors Service.
“Yet the pace of change will be less significant than last year because of growing funding and operating costs,” he added.
CAUTIOUS OUTLOOK
Rising interest rates have been a boon for local lenders, as seen from the double-digit growth in net interest income – earnings on loans minus deposit costs – and net interest margins last year.
But with the US Federal Reserve on track for smaller interest-rate hikes this year, banks will start seeing slower earnings growth on this front, said IG’s market strategist Yeap Jun Rong.
Funding costs are also catching up amid the continued competition for deposits, which may see growth momentum in net interest margins “start to come off notably”, said Mr Thilan Wickramasinghe, head of research at Maybank Securities in Singapore.
Top executives at the banks have flagged a cautious outlook.
OCBC, for instance, is guiding a net interest margin of about 2.1 per cent this year versus 1.91 per cent for 2022 and 2.31 per cent in the latest quarter.
Speaking at the bank’s results briefing last week, group chief executive Helen Wong said global interest rates may plateau and even taper in the second half of 2023.
“I don’t want to paint too rosy a picture as we go into the rest of the year,” she was quoted as saying in an article by The Business Times.