Singapore Banks Earnings
The three local banks, DBS, OCBC & UOB comprise the lion’s share of the Straits Times Index (STI), so it is little surprise that their earnings announcements are closely watched.
Singapore banks Q2 2022 earnings – Net interest income may do the heavy-lifting for earnings, economic outlook will be in focus as well
| Company | Earnings Report Date |
| United Overseas Bank Ltd | July 29, 2022 (Before market) |
| Oversea-Chinese Banking Corp Ltd | August 3, 2022 (Before market) |
| DBS Group Holdings Ltd | August 4, 2022 (Before market) |
The three local banks are set to report their Q2 2022 earnings over the next two weeks, with UOB leading the releases this time. Price performance over the past one year suggests that the local banks have given up almost all of their previous gains, as global equities market took a beating to price for impending growth risks as a trade-off to tighter policies. The declines are broad-based, with the Straits Times Index (STI) hovering at a mere 1.3% return over the past year. DBS and UOB managed to eke out a single-digit gain of 4.2% and 6.2% respectively, while OCBC was the underperformer, diverging from the rest with a 4.1% decline.
| DBS | OCBC | UOB | |
| Q1 Revenue (billion) | 3.08 | 2.64 | 2.36 |
| Q2 Revenue estimate (billion) | 3.78 (+5.3% YoY) |
2.70 (+4.9% YoY) |
2.65 (+9.5% YoY) |
| Q1 EPS Adj. | 0.7 | 0.3 | - |
| Q2 EPS Adj. estimate | 0.63 | 0.28 | 0.64 |
| Q1 Net income (billion) | 1.80 | 1.36 | 0.91 |
| Q2 Net income estimate (billion) | 1.62 | 1.26 | 1.09 |
Source: Refinitiv
Net interest margin may see a catch-up to the interest rate upcycle environment
All three local banks have only seen a slight pick-up in net interest margins (NIMs) of around 2-3 basis points (bps) in Q1 but with the tightening pace gathering stronger upside momentum in Q2, the reporting quarter is likely to bring about a more significant catch-up in net interest margins to be more reflective of the interest rate upcycle environment. A look at the average of both the 3-month SORA and 3-month SIBOR revealed an ongoing surge in borrowing costs to levels almost comparable to pre-Covid period. As further repricing of loans continues to play out, an ongoing reversion in NIM to pre-Covid levels suggest room for a 20 bp margin expansion.
Previous guidance from the banks suggests that its net interest income (NII) portion could do the heavy-lifting for profits ahead. UOB has guided that every 25 bp hike in Fed Funds rate should translate to about 4 bp of NIM improvement or S$150 million of incremental net interest income. OCBC has guided that a 100 bp parallel rise in yield curves could increase net interest income by an estimated S$669 million, or approximately 11.4% of its 2021 NII. DBS is the clear forerunner, estimating that a 100 bp increase in the US Fed Funds rate will increase NII by between S$1.8 billion and S$2.0 billion. The second quarter alone has seen the US raise Fed Funds rate by a total of 125 bp, providing a strong tailwind for the interest income portion in the upcoming results.
Bank lending data suggests loans demand in Q2 remains intact but outlook will be in focus as well
Based on Singapore’s bank lending data, demand for loans and advances may stay robust in Q2 as pent-up demand from both businesses and consumers was underpinned by economic reopening. However, while loan advances may continue to stay above trend at least in Q2, a prudent outlook from businesses amid economic growth concerns has surfaced with a small decline for businesses loans in May – its first since November 2021. Further moderation in economic activities could continue to play out towards the rest of the year, leaving any further downtick in loan demand on watch as more and more corporate firms potentially cut back on investment spending. Front-loading of rate hikes in the near term may help to cushion against any decline in loan balances but as the pace of rate hikes slows into next year while economic growth weakens, the longer-term outlook may seem to be carry more uncertainty.
Wealth management income to display some signs of weakness
Amid the downbeat risk sentiments during the first half of the year, wealth management income is expected to see a decline on a year-on-year basis in Q2 on lower sales of investment products, coming in line with market conditions. Trading income could also remain muted or slightly underperformed compared to a year ago. That said, the weaker performance could be cushioned by further increases in card fees, as pent-up consumer demand and accumulated savings continue to drive spending in the near term.
The outlook for consumer spending may be key, considering that elevated pricing pressures remain persistent, which could dampen spending sentiments ahead. The latest Singapore’s inflation rate in June continues to reveal an upside risk, with headline inflation pulling ahead of expectations with a 6.7% year-on-year increase compared to 6.2% consensus. Likewise, core inflation shows no signs of letting up as well, with its 4.4% increase towering above the 4.2% expected.
Fund flow data showing no signs of prominent institutional net inflows yet
The SGX weekly fund flow data revealed an ongoing distribution in the financial sector since the start of the year, as institutional investors pare down on their holdings to position for a global tightening in monetary policies by central banks. At the time of writing (26 July 2022), net institutional positioning for financials is currently at its lowest level since February last year and while the extent of overall net outflows seems to have eased in recent weeks, institutional investors remain cautious in taking on additional risks with no prominent amount of net inflows being presented yet.
The dividend yield for all three local banks stand at between 4-4.5%. While no further increase in dividends could be expected amid the challenging economic conditions ahead, the three banks seem well-positioned to weather the downturn with a healthy build-up of loan loss provisions during the Covid-19 pandemic while being prudent in releasing these provisions over the past few quarters.
DBS share price: technical analysis
After a 21% decline in DBS share price from its peak in February this year, there was an attempt to recover last week. This comes with an upward break above a previous consolidation zone, alongside the resilience in global equities market as sentiments try to recover from extreme pessimism levels. That said, a retest of the S$31.35 resistance was met with a bearish rejection yesterday, with the formation of a shooting star suggesting that some selling pressure remains. The level is where a 23.6% Fibonacci retracement stands in place, with one to watch for any break above this level to denote a greater shift in sentiments to the upside.
Source: IG Charts
OCBC share price: technical analysis
OCBC share price seems to be largely trading within a range over the past one year, with one-year price performance lagging behind both DBS and UOB. A break above a near-term ascending channel pattern points to an improvement in sentiments for now, with share price potentially moving to test the S$11.74 level next. That said, signs of lingering indecision are still present with the largely flat-lined MACD indicator, potentially pointing to some wait-and-see in the lead-up to its result release next week.
Source: IG Charts
UOB share price: technical analysis
UOB share price movement seems to be trading similarly to DBS, where a recent higher high was formed after a period of consolidation. Along with a bullish MACD crossover denoting near-term upward momentum, this brings a retest of a key 23.6% Fibonacci retracement at the S$27.10 level. Further upside could then leave the S$28.23 level on watch next, where a previous support will now serve as resistance to overcome.
Source: IG Charts
- DBS
- OCBC
- UOB
Market Capitalisation: 80.91 billion*
Development Bank of Singapore (DBS) is the largest bank in Singapore by assets and was initially established by the Singapore government to assume industrial financing activities. DBS acquired the Asian private banking business of Societe Generale in 2014, and was the only ASEAN bank to be ranked among the world's top 50 private banking brands in 2015.
* as of 26 July 2022
Live DBS prices
Market Capitalisation: 52.28 billion*
Registered in 1932, Oversea-Chinese Banking Corporation Limited (OCBC) is the oldest bank in Singapore, after a merger of three Hokkien lenders. It counts OCBC Securities and Great Eastern Holding Ltd among its subsidiaries. The bank has a presence in 18 countries and territories, and is the second-largest financial institution in Southeast Asia (SEA) by assets.
* as of 14 April 2022
Live OCBC prices
Market Capitalisation: 46.67 billion*
United Overseas Bank (UOB) was set up in 1935 and is now the third-largest bank by assets in Southeast Asia. Having started out as United Chinese Bank, UOB was renamed in 1965 and it now has over 500 offices across 19 countries and territories. The bank is increasing its yuan business, with the asset management arm securing a RQFII licence in June 2015.
* as of 26 July 2022
Live UOB prices
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