Singapore banks' profit to slump 18% in 2Q12

The large trading gains in 1Q will unlikely be repeated this time around.

Here's more from Barclays:

Lack of large trading gains in 2Q: We forecast the combined 2Q12 profit for the three Singapore banks to rise 3% y/y but decline sequentially by 18% q/q as the large trading/investment gains and strong margin expansion in 1Q, will unlikely be repeated in 2Q.

However, we expect the banks to benefit from solid loan growth, strong funding base and low credit costs. We raise our full year FY12-14E profit estimates up slightly by 1-3% on average. Results will be announced on 2 Aug for OCBC, 3 Aug for DBS and 7 Aug for UOB.

Loan growth still solid despite economic headwinds: Despite a potential contraction in Singapore’s economy (2Q GDP advance estimates of -1.1% q/q), regional demand for lending remains strong. System lending and deposits grew by 2.4% and 0.9% QTD May-12, respectively. For 2Q12, we estimate loan and deposit growth of 2-2.5% q/q and the loan-to-deposit ratio to remain stable.

Mild margin compression q/q: In 2Q, we forecast mild downward margin normalization of 1-3bp q/q (after 1-4bp improvement in 1Q) from slight pressure on asset yields (e.g. loan book repricing and competition). We believe funding costs were largely stable q/q but see scope for improvement going forward due to the growing reliance on longer-term sources of funding (e.g. medium term notes and commercial papers).

Pricing of MTN and CPs are attractive relative to deposits due to the Singapore banks’ strong credit ratings. We maintain that margins will rise by 5-11bps over the next three years and NII to grow 12-14% y/y between FY12-14E.