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 bank Q2 2020 earnings – Dividends cut, outlook uncertain

Company Earnings Report Date
DBS Thu, 6 Aug 2020 (Before market)
UOB Thu, 6 Aug 2020 (Before market)
OCBC Fri, 7 Aug 2020 (Before market)

The trio of local banks reports Q2 2020 earnings across the first week of August, set to continue outlining the Covid-19 impact in what is expected to be the worst hit quarter thus far. DBS Group Holdings Ltd and United Overseas Bank Ltd are expected to deliver their earnings reports before the market open on Thursday, August 6 and OCBC to follow on Friday. A significant plunge in earnings is widely seen to be the case going into the earnings while share prices have likewise been seen under pressure following the latest advisory from the Monetary Authority of Singapore (MAS) to cap dividends.

DBS OCBC UOB
Q1 Revenue (billion) 4.026 2.490 2.407
Q2 Revenue estimate (billion) 3.530
(-4.8% YoY)
2.644
(+1.0% YoY)
2.390
(-7.5% YoY)
Q1 EPS Adj. 0.450 0.155 0.510
Q2 EPS Adj. estimate 0.472
(-24.8% YoY)
0.218
(-24.1% YoY)
0.472
(-31.0% YoY)
Q1 Net income (billion) 1.165 0.698 0.855
Q2 Net income estimate (billion) 1.188
(-25.9% YoY)
0.975
(-20.2% YoY)

0.781
(-33.1% YoY)

Source: Refinitiv

Covid-19 implications on bank earnings

Going into the Q2 earnings season for Singapore banks, net income is broadly expected to take a hit across the board. This perhaps come across as no surprise as the Singapore economy underwent a prolonged period of circuit breaker conditions whereby movement restrictions significant hampered economic activities. This had likewise been the case across the globe, affecting the externally dependent Singapore economy.

While some signs of recovery had been noted across major economies, such as the US and China since at least May, bank lending had nevertheless continued to plunge locally. The latest June 2020 print was seen falling to negative territory, down 1.0% year-on-year, one to weigh on the interest income for banks. This is while net interest margins (NIMs) are expected to be compressed following the Fed’s race to zero earlier in Q1 to shore up support for the economy. 3-month SIBOR as a reference was seen hanging just above 0.5% into end-June, falling 50bps from end of Q1 and have since slipped past the level into end-July. Although some interests for short-term corporate lending had been noted into the Covid-19 pandemic, it may not be enough to offset the broad weakness for the loan demand picture.

Singapore banks to cut dividend pay-outs

While earnings and guidance will be heavily scrutinised in the upcoming earnings releases across the trio of banks, the address of the dividend part of the story will be crucial. As it is, the latest recommendation from the MAS on capping FY 2020 dividend per share (DPS) to 60% of FY 2019 levels had been a hit to prices. Conventional dividend discount models (DDM) used to evaluate and assess the fair value for banks accord significant importance to dividends as the name indicates. In turn, this move would shave the short-term returns for investors and had therefore seen the averse reaction with the diminishing of the attractiveness here.

Year-to-date performance for banks remain rather lacklustre with prices broadly down approximately 20% into end-July. UOB viewed to have higher domestic exposure is seen to be faring worse than DBS and OCBC with relatively higher greater China exposure, the latter economy favoured for its recovery with better management of the Covid-19 pandemic thus far. A continued cautious outlook may well be retained by management with the bank earnings in the coming week in light of the resurgence evidences across the globe.

DBS share price: technical analysis

As one to the two banks to lead the bank earnings releases, the perception towards DBS’ results would likely ripple across to OCBC. Watch the earnings performance against consensus and guidance here for any disappointments that could see prices be susceptible to declines once again.

DBS share price can be seen caught in a short-term downtrend after the resurgence in Covid-19 cases became more rampant across the globe into H2 2020 and with US-China aggravations resurfacing. Prices had deviated from the uptrend seen since March and tipped past the 38.2% Fibonacci retracement level after the MAS advisory on dividends. Immediate support seen at $18.96 while a break past the downtrend resistance would be needed to see prices move out of this short-term decline.

Over and above DBS’ performance, any disappointments in the other two may also find substitution effect that could see to changes in prices, one to watch over the earnings season. Changes in risk sentiment surrounding Covid-19 developments and data updates would also play a part.

Source: IG Charts

DBS

Market Capitalisation: 50.69 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 30 July 2020
Live DBS prices

OCBC

Market Capitalisation: 37.74 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 30 July 2020
Live OCBC prices

UOB

Market Capitalisation: 32.60 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 30 July 2020
Live UOB prices

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