Singapore Banks Post Profit Declines on Mounting Provisions

(Bloomberg) -- Two of Singapore's largest banks laid out the damage to their balance sheets caused by the pandemic, reporting the second straight quarterly plunge in profits and another surge in bad-debt provisions.

DBS Group Holdings Ltd. saw its net income fall 22% from a year earlier and United Overseas Bank Ltd. posted a 40% drop as a slump in lending income added to their woes, results for the three months ended June 30 showed Thursday. Still, chief executive officers of both banks signaled they can weather the economic storm, maintaining earlier guidance on credit costs. That helped the shares gain, with DBS rising as much as 2.6%.

Like their global peers, Singapore's lenders are bracing for a wave of soured debts as the coronavirus crisis hammers the economy. While government relief measures have supported businesses, the central bank has indicated they won't be extended and ordered the lenders to cap their 2020 dividend payouts to boost capital reserves.

At DBS, Southeast Asia's largest bank, net income totaled S$1.25 billion ($913 million), beating the S$1.19 billion projected by analysts, as a drop in expenses softened the blow. UOB's profit was S$703 million, missing the S$784 million estimated.

“Results were in line with expectations especially around provisions” which could be read as positive in light of recent declines in the stocks, said Kevin Kwek, a banking analyst at Sanford C. Bernstein in Singapore. “There were some modest positives such as cost cuts for both, to offset expected margin drops.”

‘No One Knows'

DBS maintained its guidance for total allowances of around S$3 billion to S$5 billion over two years, S$1.9 billion of which were taken during the first six months, CEO Piyush Gupta said in a presentation accompanying the results.

“We built up generous general provisions because no one knows what will be the full impact once the moratorium ends,” Gupta said at a briefing. Business closures may come during the second half of the year, he added.

UOB's credit costs are likely to remain around second-quarter levels, “with more preemptive allowances to cushion anticipated asset quality weaknesses,” CEO Wee Ee Cheong said.

Non-performing loans may double in a worst case and peak at the end of next year, Chief Financial Officer Lee Wai Fai said in a Bloomberg Television interview. UOB is working with the Monetary Authority of Singapore to ensure customers don't go under once the relief programs expire, Lee said.

Falling interest rates are also taking a toll on the banks by shrinking loan profitability. Both banks saw their net interest margins narrow more than 20 basis points from three months earlier. UOB expects margins to recover in the second half.

Shares of DBS rose 2% at 12:15 p.m. in Singapore, taking this year's decline to 22%. UOB rose 1.5%, and is down 25% in 2020.

Oversea-Chinese Banking Corp., Southeast Asia's second-largest bank, will report its earnings Friday.

Other Highlights

• DBS saw its net interest margin shrink to 1.62%, while UOB's fell to 1.48%.
• UOB's net interest income declined 12% from a year earlier, and DBS posted a 5% drop.
• DBS's non-performing loan ratio fell on quarter to 1.5% and UOB's stayed at 1.6%.

©2020 Bloomberg L.P.