Here’s what you can expect from Singapore banks: CIMB

DBS: 3Q11 expectations
We expect a S$632m net profit (-14% qoq) for DBS, with earnings headwinds from lower capital-market-related income and trading. 2Q already had some MTM losses. DBS said that treasury-related gains were increasingly customer-driven and stable. 3Q would provide evidence on how much of this is true. Also, the bank previously said it would benefit from a collapse of the US$ (when the US’s credit rating was cut).

The dollar swung the other way in 3Q. Lastly, a low SOR and tighter US$ funding could conspire to bring margins down further. These are the negatives expected for 3Q. Positives are: 1) loan growth is likely to stay above peers as DBS benefitted from increased (US$) trade-financing demand in Asia, after French banks pulled out of Asian markets; and 2) talk that private-banking inflows have accelerated following the euro crisis. Expect questions on DBS’s US$ funding and its private-banking progress.

OCBC: 3Q11 expectations
We expect a S$503m net profit (-13% qoq). The key inputs are lower fund-management, wealth-management and insurance income. We also expect higher credit costs, only because they were so low previously (2Q: SP nil, GP 18bp). Bank of Singapore CEO Renato de Guzman said that his unit had been a beneficiary of the euro crisis, via stronger AUM growth; we will be curious to see how wealth-management fees are tracking AUM growth.

Fund-management trends will also be watched to ascertain any damage from the departure of ex-Lion Global CEO. The bread-and-butter lending business should be stable. OCBC had the best credit risk management during the GFC and should not sputter.

UOB: 3Q11 expectations
We expect a net profit of S$585m on 2 Nov. Loan growth is likely to stay strong, though this could be largely negated by a larger-than-peers’ margin contraction from: 1) the likely sale of AFS investment securities in 3Q, bringing down overall interest yields; 2) higher-cost longer-term funding sources raising funding costs; and 3) the possibility of UOB trying to stay competitive by adding more overseas deposit funding, since it is quite concerned about funding.

There should be some offset from higher interest yields in future quarters as all the local banks have started to raise loan pricing. UOB is also likely to have further reduced its S$1.5bn European bank debt portfolio and possibly close off a large chunk of its US$ government debt. Given its constant guidance on leveraging its ASEAN platform and network to spur transactional fee growth, we would be curious to see whether its more stable fees (loan-related, trade-related, credit cards) can hold up.