DBS bad loans could spike 1.5% by end-2016

An even higher NPL ratio is expected next year.

With the soft Singapore economy and continued stress from the oil & gas sector, RHB is projecting DBS' non-performing loans (NPL) ratio to rise to 1.5% by end-2016 from 1.3% in 3Q16, and to 1.8% at end-2017.

The research house added that with 3Q16’s loan loss coverage of 100% (and management intending to maintain the ratio) it projects 2017 provisions of SGD1.34bn, down 5% YoY.

On a positive note, despite expected asset quality deterioration, RHB sees the bank's net interest margin (NIM) to widen from higher interest rates.

3Q16 NIM of 1.77% was 10bps lower QoQ, as SGD interest rates were soft.

"Nevertheless, we believe the impending US Federal Reserve rate hike would widen its NIM to 1.82% in 2017. This coupled with projected 2017 loan growth of 3% should expand NII (net interest income) in 2017," it explained