Chart of the Day: Banks buckle up for a rough 2016 earnings ride

They’re shaking their heads over vanishing loan growth.

Loans are more or less the lifeblood of banks, and when customers are having second thoughts on borrowing from these financial institutions, it’s definitely a red flag.

Loan growth has been the thorn in the side of Singapore’s established banks for a while now, muddying the overall macro outlook for the coming year.

According to analysts from DBS, the slow loan growth would be further aggravated by a dent to asset quality.

“We moderated FY16F loan growth to 5% from 7%, while we assume credit cost will rise closer to a 10-year average level of 28bps from 25bps. We have also assumed NPL ratio increases by 20bps to 1.2% (from 1.0%). As a result, we expect 2016F earnings growth to moderate significantly to 7% y-o-y,” DBS said.

“Our bear case scenarios reflect a partial GFC incidence; partial because asset quality indicators would be close to the FY08-09 average but excluding the effect of CDOs (collateralised debt obligations) and the Middle Eastern crisis,” DBS added.