Singapore banks Q2 dented by bad debts

July 29, 2009
Singapore Democrats

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Saeed Azhar

Singapore’s three banks could post sharp declines in quarterly profits from a year earlier, hit by bad debt charges and lower trading income.

But analysts may focus more on the quarter-on-quarter numbers and look for forward-looking trends as the April-June period saw Singapore’s economy pulling out of its worst recession ever.

The situation is similar in Malaysia, where the banks’ year-on-year performance is likely to be mixed and the spotlight will be on the quarterly trend as lending picks up.

Malaysian banks are expected to report better earnings for the quarter as loans likely grew on the back of the government’s economic stimulus measures, and non-performing loans and provisioning charges dropped as business conditions improved.

“While most still expect elevated credit costs, we think this could well come down from the first quarter, which we think was the peak,” Goldman Sachs analyst David Ng said in a note.

“Should asset quality prove to be more resilient, we see this potentially driving major earnings upgrades by consensus post result season.”

JPMorgan analyst Harsh Wardhan Modi said three things have changed in the six months — liquidity is ample, the capital base is strong and systemic risks have diminished.

But that may also lead to weaker interest rate margins for Singapore banks going forward and may lower yields on loans.

“While second quarter margins should be resilient due to lagged impact of wide loan spreads and deposit rate cuts, the outlook for net interest margins in the second half remains poor,” Wardhan said.

DBS Group Holdings, Southeast Asia’s biggest bank, could see its profit slide 30 percent in the April-June period from a year earlier, according to an average estimate by six analysts in a Thomson Reuters poll.

Analysts in Malaysia do not provide quarterly forecasts, but outlook has certainly improved from the first quarter.

“We expect CIMB Bank’s second-quarter results to be on par or better than its first-quarter performance,” said Danny Goh, analyst at Credit Suisse in Kuala Lumpur. Maybank’s results are expected to reflect goodwill impairment charges of about 2-3 billion ringgit from its acquisition of Bank Internasional Indonesia and MCB Bank in Pakistan, said Bank of America/Merrill Lynch analyst Loo Kar Weng.

Public Bank, the first Malaysian bank to announce quarterly earnings, said last week net profit grew by 2.9 percent to 610.74 million ringgit ($172.2 million) in the second quarter from a year ago.