http://www.asiaone.com/Business/News/Story/A1Story20090504-139126.html
Bad debt charges may haunt Singapore banks
Mon, May 04, 2009
Reuters
SINGAPORE - Singapore's three banks could post sharp declines in
quarterly profits this week as bad debt charges soar, and investors
will be keen to see how much market share they are gaining from
battered foreign players in Asia.
Malaysian banks are also likely to be hurt by a squeeze in interest
rate margins following hefty rate cuts by the
country's central bank and as loan growth stutters.
Southeast Asian banks survived the initial phase of a global
financial crisis relatively unscathed due to minimal
toxic debts on their books, but began to feel the effects of an
Asian economic downturn from the second half of 2008.
DBS Group Holdings , Southeast Asia's biggest bank, could see its
profit slide 47 percent in the Jan-March period from a year
earlier, according to an average estimate by five analysts in a
Thomson Reuters poll.
"NPLs have only just started to rise in the fourth quarter of 2008
and are likely to continue on an uptrend as the
recession feeds through into the banking system," Kar Weng Loo, an
analyst at Banc of America Securities-Merrill Lynch, wrote in a
note to clients, referring to non-performing loans.
Despite the gloomy year-on-year forecasts, analysts expect some
bright spots in the first quarter, such as higher trading gains
quarter-on-quarter as banks bet on volatile foreign exchange and
stock markets.
Singapore banks, which are capturing market share from foreign
lenders, are also gaining pricing power, which may boost interest
rate margins compared with the October-December period.
"A steeper yield curve and better loan pricing should provide
upside support for net interest margins despite
negative loan growth," said CLSA banking analyst Thilan
Wickramasinghe.
These expectations and a renewed global appetite for risk-taking
have boosted shares of Singapore banks since they
hit multi-year lows in early March. Singapore's index for financial
stocks has gained almost 46 percent since hitting a year-low of
323.51 points on March 10.
But CLSA's Wickramasinghe warned the "overarching concern" for
Singapore banks is asset quality, which may translate into higher
bad debt charges.
Moody's Investors Service last month cut its ratings outlook on
Singapore's three banking groups to "negative" from
"stable", saying the global recession would hurt earnings and asset
quality.
Thai banks kicked off the earnings season for Southeast Asian
lenders earlier this month, with Bangkok Bank,
the country's biggest, reporting a 13.5 percent drop in quarterly
profit.
Analysts in Malaysia do not provide quarterly forecasts, but
Malaysian bank earnings are likely to take a hit from a
slowing economy and lower interest rate margins due to the central
bank's 150 basis points interest-rate cut since the fourth
quarter.
But a significant deterioration in overall asset quality is
unlikely because of the absence of any large corporate
defaults, said Loong Chee Wei, analyst at CLSA in Kuala
Lumpur.