Chart of the Day: Find out which local bank has the biggest loans to Greater China

36% of its loans are located in the mainland.

Singapore’s three biggest banks are expected to report slight margin pressures this quarter, with the sector’s underlying profits expected to experience a 10% quarter on quarter drop.

As the reporting season for the country’s banks rolls in, Barclays reports that DBS and OCBC’s margins are expected to be under some pressure due to liquidity tightness in China.

When it comes to loans, DBS has the biggest mainland exposure at 36%. OCBC is second with 17%, while UOB has the smallest exposure at a mere 7%.

“We expect margins to be under some pressure q/q, especially for DBS and OCBC, which benefited from liquidity tightness in China in 4Q13/1Q14. China’s interbank rates have since eased with SHIBOR falling from an average of 5.5% in 1Q to 4.75% by end-June 2014, which should result in lower yields on loans, trade finance and interbank placements. We estimate loans grew 2-3% q/q in 2Q14, largely led by corporate and offshore loan demand,” noted the report.

Here’s more from Barclays:

The reporting season for Singapore banks starts on 31 July with UOB followed by DBS on 1 August and OCBC on 5 August. We expect sector underlying profit to rise by 7% y/y but fall 10% q/q due to seasonally lower client activity, trading gains and mild margin pressure q/q on China-related exposure. We expect other operating trends to remain largely stable with 2-3% loan growth q/q and sound asset quality.

Seasonally lower trading and investment gains: We expect seasonally weaker trading and investment gains q/q in 2Q14. Profit contribution for OCBC from Great Eastern (GE), which tends to be volatile, but given that credit spreads have largely remained stable, we do not expect a significant swing in mark-to-market gains/loses on GE’s life insurance bond investments. 

Credit cost to remain low: We do not expect any systemic deterioration in overall asset quality. DBS management remains watchful of exposure to Indian mid-caps (total India exposure of S$12bn of which S$2bn exposure to mid-cap corporates, equivalent to 1.1% of 1Q14 loan book).

We expect UOB to see a small uptick in non-performing loans in Thailand and Indonesia affected by slower economic growth and political uncertainty, but will unlikely materially affect overall credit cost for the group. We have conservatively factored in an increase in credit costs going forward.