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Risks remain for Singapore banks despite strong Q2 results

Singapore banks have rounded off a strong earnings season - reporting better-than-expected profits in the second quarter. However, analysts say some risks linger and these include exposure to Chinese loans and a softening property market at home.

SINGAPORE: Singapore banks have rounded off a strong earnings season - reporting better-than-expected profits in the second quarter. However, analysts say some risks linger and these include exposure to Chinese loans and a softening property market at home.

With earnings reports that beat market expectations, Singapore banks have sought to downplay risks associated with local property loans.

In its second quarter results briefing on Tuesday (Aug 5), OCBC Bank said that at present, it does not see systemic issues in its housing loan portfolio that have arisen from recent property-cooling measures.

Mr Samuel Tsien, CEO of OCBC Bank, said: "Our housing loan portfolio in Singapore is actually below the group housing loan portfolio quality of 60 basis points - quite significantly below that. We have not seen an uptick, we have not seen any repayment issues. I believe the housing loan portfolio will be able to be maintained if Singapore's employment continues to be as it is."

Just a week earlier, DBS said that its property loans portfolio can withstand a 30 per cent drop in property prices. Meanwhile, UOB also said that there is no systemic risk in its overall housing loan portfolio - even though it saw bad loans jump due to a small group of home loan borrowers, believed to be high-end property investors.

But Singapore housing loans aside, there are worries over the banks' exposure to commodity-financing fraud in China. All three banks said that most of their loans to Chinese companies are limited to trade finance loans, which tend to be collateralised and short-term. According to rating agency Fitch, Singapore had 12 per cent of its banking assets exposed to China-related assets at the end of 2013, up from 4 per cent at the end of 2009.

Despite the risk, some analysts said that slower loan growth at home means the banks need to look outwards. Mr Ivan Tan, Director of Financial Institutions Ratings at Standard & Poor's, said: "Loans grew about 18 per cent in 2013, our forecast for 2014 is that it'll be at 8 to 10 per cent - so it'll be roughly half the loan growth. The driver will come from mostly regional expansion. The Singapore market, and the Malaysia and Hong Kong banking systems are pretty saturated at this point, not much outward potential for loan growth. Indonesia and China is where most of the loan (growth) will come from."

Singapore banks have been seeking acquisitions in some of these markets. OCBC said it had successfully acquired Hong Kong's Wing Hang Bank. It will announce further details at a later date, including how it plans to finance the deal and integrate Wing Hang into its operations.

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