SINGAPORE: Singapore lenders DBS Group and OCBC gave cautious outlooks on Friday (Apr 29) after reporting 10 per cent declines in quarterly profits amid weaker economic growth, though their performances still beat analysts' estimates.
Though rising interest rates and the full reopening of Singapore's trade-dependant economy after restrictions during the pandemic spell good news for banks, inflation risks are weighing on their prospects.
"We expect profitability to increase further as upcoming interest rate rises will boost margins," said Eugene Tarzimanov, a senior credit officer at Moody's Investors Service, referring to DBS, OCBC and smaller rival United Overseas Bank (UOB). "A key risk to our stable credit view is a potential surge in inflationary pressure."
Shares in DBS, Southeast Asia's largest bank, rose 4 per cent while OCBC jumped 3.6 per cent. The broader market gained 1 per cent.
Net profit at DBS fell to S$1.8 billion in January-March from a record S$2 billion a year earlier. The net profit was above an average estimate of S$1.63 billion from six analysts, according to Refinitiv data.
Second-ranked OCBC posted a first-quarter net profit of S$1.36 billion, down from S$1.5 billion a year earlier, but this was also higher than an average estimate of S$1.2 billion.
Both banks have built up some of the biggest wealth management businesses in Asia over the past decade, and both warned of weakness in the lucrative segment due to wobbly markets.
At DBS, wealth management fees fell 21 per cent in the quarter, while wealth management income at OCBC dropped 26 per cent.
UOB also posted a 10 per cent fall in net profit, but it missed market estimates. Its shares fell 1 per cent.
Singapore banks last year benefited from a strong recovery in formerly pandemic-hit markets and from economic growth of 7.6 per cent. This year the central bank expects only 3 per cent to 5 per cent growth.
Earlier this week, global bank Standard Chartered beat expectations for first-quarter profit and flagged a robust outlook, while HSBC reported an unexpected hit to its capital.
DBS CEO Piyush Gupta warned about lingering risks from a spike in commodity prices, higher inflation and muted economic growth.
"When you put all of these together, it's quite clear that the outlook for the next year or so is going to be difficult to forecast," he told reporters.
DBS earns most of its profit from Singapore and Hong Kong, while OCBC's key markets are Singapore, Greater China and Malaysia.
Earlier this year, DBS and UOB separately snapped up retail assets sold by Citibank in Southeast Asian markets and Taiwan.
Profit at DBS, OCBC and UOB jumped from the fourth quarter while credit costs remained muted. UOB's profit was lower than in the fourth quarter.
"The market will also look ahead for signs, and see the beginnings of benefits on margin uplift, and decent loan growth of 8-9 per cent," said Kevin Kwek, senior analyst at Sanford C. Bernstein.