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Singapore banks Q3 2023 earnings

Resilience in net interest income, but forward-looking guidance remains in focus

Singapore Source: Bloomberg
Earnings Report Date

The three local banks are set to report their Q3 2023 earnings over coming weeks. Year-to-date performance reveals OCBC (+6.3%) as the only one out of the trio in positive territory, while DBS (-1.7%) and UOB (-8.5%) lag. This is generally in line with the subdued showing in the broader Straits Times Index (STI), which is down 3.5% year-to-date.

Overall, the average year-to-date performance of our three local banks (-3.8%) lagged slightly behind the MSCI AC Asia Pacific Financials Index (-0.8%), but far outperforms the US KBW Bank Index (-24.5%).

Bank Revenues Source: Refinitiv
Year-to-date performance change Source:Refinitiv

Net interest income to do the heavy-lifting for earnings, as rates expected to stay elevated for higher

Despite an impending end to the US Federal Reserve (Fed)’s hiking cycle, market participants have been accustomed to the fact that rates will stay high for longer, with validation found from the resilience in US economic conditions. Therefore, while upside for the Singapore Overnight Rate Average (SORA) and other benchmark lending rates may have stalled over the past months, expectations are anchored that rates may remain at elevated levels for the foreseeable future.

Thus far, the banks’ net interest margins (NIMs) have likely peaked but have been tapering at a gradual pace over the past quarters, despite having the largest tailwind from the interest rate upcycle behind us. Additional repricing of loan may continue to provide support for the banks’ net interest income portion at the upcoming results, but some focus will revolve around any guidance as to how long the trend may last. Previous comments from DBS CEO Piyush Gupta suggest ‘a couple of basis points (bp) upside’ in NIM from current levels, citing US interest rate increases in the second half of 2023.

Bank's net interest margin versus 3-month sora Source: Monetary Authority of Singapore (MAS)

Risks: Short-lived bounce in lending activities, higher allowances

On the other hand, the risks may continue to revolve around the uncertain economic risks, as loan volume in Singapore for the second quarter seems to be resuming its downward trend after a short-lived bounce. Monthly business loans as of August 2023 has touched a new low since the start of the year, although consumer loans have largely held steady.

Nevertheless, more subdued lending conditions could potentially linger for longer. The latest home prices data from the Urban Redevelopment Authority (URA) revealed only a marginal increase in the third quarter of 2023 (+0.5%), while new private home sales have dipped in August. Headwinds from higher interest rates, three rounds of property cooling measures and lingering economic growth risks have been driving buyers’ fatigue lately, which may be set to continue into next year.

Aside, the local banks continue to build up their provision for loan losses in 2Q 2023, more notably in OCBC and UOB, although their non-performing loan ratio has remained resilient. This portion could be harder to grasp in the upcoming results, given that economic conditions have largely held up but downside risks to growth persist.

Total loans & advances (Business & Consumers) Source: Refinitiv

Lacklustre market conditions in third quarter to be pitted against resilient card spending

Air traffic statistics continues to point to robust travel momentum in the third quarter, with Singapore’s airport passenger movements up close to 60% from a year ago, which could continue to underpin card spending at the upcoming quarter. In the previous quarter, DBS’ card fees grew 17% in to S$237 million.

That said, wealth management fees could be more of a black box, with market conditions proving to be volatile during the third quarter. The VIX touching its three-month high during the period while global equity markets largely faced a correction, which could dampen some appetite towards wealth management products. Nevertheless, market participants will be looking out for any positive surprises, largely from the management’s outlook.

SGX institutional fund flow data revealed rising net inflows over past months

The Singapore Exchange (SGX) fund flow data has revealed net institutional inflows for the financial sector over the past months, amounting to S$750 million since August 2023, when the Fed stuck to its hawkish rhetoric. But one may note that this follows after months of consistently paring down exposure in the financial sector since its peak in February 2022. This data is more backward-looking, but for now, there is not too much of a clue on whether recent inflows marked a longer-term reversal, given that previous build-up in August-November 2022 failed to sustain.

Cumulative Institutional Fund Flow Source: SGX, IG

DBS share price: Technical analysis

The share price movement for DBS has been stuck in some indecision lately, with investors still seeking for a strong catalyst to induce an upward break of its near-term ranging pattern. Trading above the Ichimoku cloud support on its daily chart may still reflect some control for buyers for now, with one to watch for any successful break above key resistance at the S$34.55 level, which marked its August and September 2023 peaks. A move above the S$34.55 level may potentially pave the way to retest the S$36.00 level next.

DBS Group Holdings Ltd Source: IG charts

OCBC share price: Technical analysis

OCBC share price has been drifting higher on a broader scale, with a series of higher lows formed since July 2022. A near-term bearish crossover on its daily Moving Average Convergence/Divergence (MACD) may point to some exhaustion for now, but the broader upward trend may remain intact with its monthly relative strength index (RSI) trading firmly above the key 50 level since December 2020. An ascending channel pattern has been in place for now, leaving the lower channel trendline support at the S$12.64 level on watch in the event of further downside.

Oversea-Chinese Banking Corp Ltd Source: IG charts

UOB share price: Technical analysis

For UOB, momentum for its share price has been stalling lately as reflected in the flat-lined MACD on the daily chart, while its daily RSI fluctuates around the 50 level with the lack of a clear direction. On the downside, the S$27.70 level may prove to be a crucial support to hold, having supported prices on at least three previous occasions. Any breakdown of the support could potentially pave the way to retest the S$26.07 level next. On the upside, the S$29.20 level may be a key obstacle for buyers to overcome, which marked its recent tops while nearing a downward trendline resistance formed since the start of this year.

United Overseas Bank Ltd Source: IG charts

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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