Here's why growth-hungry Singapore banks really need to rapidly slash costs

Lower growth is the new reality, analysts say.

While banks all over the world are cutting costs to keep their edge in an era of slow growth, Singaporean banks seem blissfully unaware of the global cost-cutting trend.

“All banks are still too much topline growth focused and behind the curve to cut back on spending to reflect the lower growth reality. This is worrying to us because the banks risk negative operating leverage which would hurt the RoE profile,” Macquarie Securities said in a report.

Macquarie said that in terms of flexibility, it will be extremely easy for DBS to slow down cost growth but it is “not yet willing” to do so. OCBC will be unable to rapidly cut costs because it is still busy on the integration of Wing Hang bank, while UOB is spending a lot of money on beefing up its IT infrastructure.

“The wording on the volume growth outlook has turned more and more cautious and it does not seem impossible that domestic Singapore operations will be ex-growth next year,” Macquarie warned.

“In a low growth environment, we prefer the banks where we have confidence that asset quality will hold up well – at least in a relative context – (DBS) and banks that can afford to increase dividend payout ratios as a result of a strong capital position and lower capital consumption (UOB),” the report added.