Singapore big three banks poised for earnings growth

UOB, OCBC, and DBS have strong non-interest incomes.

Singapore’s big three banks are poised to see their earnings grow, thanks to a diversified portfolio that makes them independent from interest income, according to Fitch Ratings. Asset quality risks also reportedly remained contained as economic recovery continued in core markets of DBS, OCBC, and UOB.

“The banks’ diversified non-interest revenue has supported the resiliency of their operating income, even though interest rates have remained low. Together with a resilient asset quality, these have underpinned their high earnings stability through credit cycles,” Fitch analysts Priscilla Tjitra, Tania Gold, and Willie Tanoto wrote in the ratings agency’s latest peer review of Singapore.

The rising global interest rates will further benefit the three banks.  

“We believe Singapore is one of the APAC markets with the largest pass-through of higher US interest rates into local lending yields. This should boost banks' operating profit/risk-weighted asset ratios towards their pre-Covid-19 levels,” Fitch wrote.

READ MORE: 1 in 10 Singaporeans defer loan repayments

Fitch particularly noted the banks’ diversified non-interest revenue, which supported the resiliency in operating income for the past three years. On average, the three banks' fee income was 24% of revenue in 2021, up from pre-pandemic levels of 20% in 2019.

“Steady growth in wealth management has contributed to the stability in the banks’ fee income, which proved to be a more resilient source of revenue than credit cards and investment banking fees during the recent pandemic-induced downturn,” Fitch’s analysts noted.

The three banks’ have recently resumed regional growth plans as the economic environments in regional markets recovered. UOB purchased Citigroup’s commercial banking assets in four Southeast Asian markets–Thailand, Indonesia, Malaysia, and Vietnam–for approximately US$3.65b (S$4.915b), a purchase that analysts believe will eventually add S$1b in annual revenue to UOB.

DBS also announced its acquisition of Citi assets in Taiwan, adding around 2.2 million consumer cards and 500,000 deposit and wealth customers to its portfolio.

Neither of these purchases are “significant enough” to impact either banks’ risk profiles, Fitch said. However, Fitch noted pressure in UOB’s capitalization from pending overseas acquisitions.