Is the worst finally over for Singapore's largest banks?

Bad loan exposures are manageable.

Singapore's largest bank stocks were hammered by recent sell-downs in equity markets, but analysts reckon that the worst may finally be over for the city-state's largest lenders.

A report by OCBC Investment Research said that the three banks were the clear outperformers in the recently-concluded fourth quarter reporting season, despite slightly higher non-performing loan ratios and slightly larger provisions.

"Earnings came in better than market expectations. While there were expectations of higher provisions, the amount was not excessive and non-performing loan (NPL) ratios were still within expectations," said OCBC.

OCBC noted that while investors were concerned that the economic slowdown and the potential drag on corporate earnings could lead to a cut in dividend payout, this fear did not materialise.

All three banks maintained their dividend payouts for the year, amounting to 60 cents for DBS, 36 cents for OCBC and 70 cents for UOB, excluding a one-off special dividend.

OCBC added that banks’ exposures to commodity, oil & gas and China have been coming off since the third quarter of 2015 and are manageable as a percentage of total loan books. 

“On oil exposure, these portfolios have been stress tested at US$20 per barrel, and oil has already staged a recovery recently to almost US$40 per barrel. Exposures to commodity and China loans are mainly to the larger corporates and these loans are currently still being serviced,” OCBC noted.

“Recent strong selling pressure in the region and in Singapore has been across the board, dragging banking stocks lower. While we expect the market to remain volatile due to the uncertain outlook ahead, we believe that the recent selling has already priced in most of the negative factors in the market,” the report added.