Summary: While Singapore banks delivered around 10% y/y decline in net profits in Q1, we need to remain mindful of the base effects and market volatility that generally deterred trading and investment incomes. While the macro environment continues to provide headwinds, Singapore banks remain well positioned amid the rising interest rates environment as net interest income rises, and regional border reopening is likely to aid a further recovery in loan demand and credit card spending.
All three Singapore banks reported Q1 earnings and coincidentally, each of them have reported a 10% y/y decline in earnings. Investment losses and lower trading income amid the volatile market environment underpinned, but strong core strength was seen on the back of resilience in asset quality. Despite macro conditions continuing to get tougher with the rising inflationary environment and sustained geopolitical stress, Singapore banks remain well positioned as interest rates rise and regional border reopening aids demand.
DBS: Q1 earnings down 10% y/y to SGD 1.8bn beating consensus but lower than Q1 2021 net profit of SGD 2.01bn. DBS declared an interim dividend of SGD 0.36. Total revenue down 3% at SGD 3.75bn, while other net interest income fell 16%. Biggest drag was seen from wealth management but partly due to a strong base for 2021. Loan-related fees rose 21% to SGD 144mn, and card fees grew 11% to SGD 187mn as credit and debit card spending exceeded pre-pandemic levels and travel picked up.
OCBC: Q1 earnings declined by 10% y/y to SGD 1.36bn from SGD 1.5bn in Q1 2021. That was above consensus and underpinned by higher non-interest income which grew 8% on the back of higher trading income and insurance income. Fee income was down but wealth management business saw some traction. Allowances fell 73% y/y, bolstering results.
UOB: Q1 earnings were also down 10% y/y to SGD 906mn, but it was the only one to under-deliver on expectations. Higher net interest income growth of 10% y/y was offset by declines in trading and investment income amid the market volatility as well as structural hedging.
Overall, while Singapore bank earnings slowed down in Q1 due to macro headwinds that mostly dragged down wealth management fees as well as trading and investment income, but robust loan growth, stable loan loss provisions & improvement in net interest margin provided an offset. Inflation and supply chain disruptions present headwinds going forward, and continue to cloud the outlook. Still, Singapore banks remain well positioned in the rising interest rate environment that should provide a boost to net interest income in the coming quarters. Moreover, regional reopening trends will aid a further rebound in pent-up consumer spending via debit/credit cards, and trade loans will also remain supported by higher commodity prices. Risks seen from any increases to general provisions due to rise in inflation.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
