Trading risks to weigh on Singapore Big Three Banks’ Q1 earnings: Maybank

But core businesses are expected to show resilience.

Weak trading income and the possibility of mark-to-market losses on investment securities arising from macroeconomic volatility during the first three months of the year heightens the risks of an earnings disappointment from Singapore’s big three biggest banks, according to a report by Maybank Securities.

DBS, OCBC, and UOB are all set to report their Q1 trading update on 29 April.

Trading contribution for Singapore banks amounts to approximately 8% of their income over the past 5-years. Given market volatility in Q1, trading may emerge as a surprise downside, warns Thilan Wickramasinghe, analyst for Maybank Securities.

On the other hand, the banks’ core businesses are expected to show resilience, especially considering loan growth and improving margins. Maybank also expects asset quality to remain supported as regional re-opening gathers pace and even as loan moratoriums fade.

Also Read: DBS, OCBC, UOB: Who performed best in Q4 2021?

“Separately, we do expect operational expenses – particularly staff and IT – to continue its upwards trajectory. Border re-openings could take some pressure off staffing costs, especially in Singapore, but this is likely in the latter part of the year, in our view,” Wickramashinghe said.

“From a timing perspective, a bulk of delivery could be skewed towards 2H22, as loan re-pricing gets reflected and customer investments accelerate from regional re-opening. We would consider Q1 results-related weakness as an opportunity to accumulate,” he added.

The Russia-Ukraine invasion and global volatility could potentially affect corporate drawdown schedules.

Also Read: Singapore’s financial institutions on the lookout for risks arising from Russia

“We do not expect any material downgrades to loan growth guidance–estimated at 8.6% year-on-year for 2022–given the underlying regional re-opening momentum and potential acceleration of North-South supply chain shifts,” Wickramasinghe said.

The improved outlook for oil & gas could also result in some write-backs against provisions taken in the 2017-18 cycle.

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