Predictions of a tough 2013 for Singapore banks
(06 March 2013 – Singapore) Singapore banks’ earnings have fallen short of expectations according to a source, which now believes there will be growth of only 1-2 percent in 2013.
According to the source, DBS Bank fell short of expectations. OCBC Bank Group and United Overseas Bank (UOB) beat expectations, albeit due to unconvincing factors. DBS fell short as margins contracted more than expected while costs and allowances climbed.
DBS said its fourth quarter miss was a timing issue, as the pickup in loans only came through late in the quarter and 4Q took the hit from higher general allowances as the loans came in, but did not enjoy the full quarter of interest income.
The source reported that additionally, there was the seasonal weakness in some fee streams while some one-off costs also came through. Its guidance suggest that 1Q13 would be better. DBS remains the source’s top pick of the sector.
For OCBC and UOB, both beat expectations but it is not a convincing performance to suggest that the performance will spill into 1Q13. OCBC enjoyed a good quarter from trading and insurance; to a lesser extent, wealth management.
UOB beat expectations due to lower taxes and general allowances write-backs i.e. a low-quality beat. Worrying, the single credit that pushed up credit costs in 3Q carried on into 4Q, bumping up specific provisions.
The source upgraded UOB from Underperform to Neutral post-results, not because the results were impressive but because the stocks’ ytd underperformance leaves less room to be negative.
Looking ahead, the source forecasts sector earnings growth to be only 1-2 percent for 2013. The banks guide for 6-10 percent loan growth.
DBS said its fourth quarter miss was a timing issue, as the pickup in loans only came through late in the quarter and 4Q took the hit from higher general allowances as the loans came in, but did not enjoy the full quarter of interest income.
The source reported that additionally, there was the seasonal weakness in some fee streams while some one-off costs also came through. Its guidance suggest that 1Q13 would be better. DBS remains the source’s top pick of the sector.
For OCBC and UOB, both beat expectations but it is not a convincing performance to suggest that the performance will spill into 1Q13. OCBC enjoyed a good quarter from trading and insurance; to a lesser extent, wealth management.
UOB beat expectations due to lower taxes and general allowances write-backs i.e. a low-quality beat. Worrying, the single credit that pushed up credit costs in 3Q carried on into 4Q, bumping up specific provisions.
The source upgraded UOB from Underperform to Neutral post-results, not because the results were impressive but because the stocks’ ytd underperformance leaves less room to be negative.
Looking ahead, the source forecasts sector earnings growth to be only 1-2 percent for 2013. The banks guide for 6-10 percent loan growth.
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