• For 1H2020, the three banks averaged a net profit of S$1.80 billion, down an average 32.5% y-o-y. DBS reported the highest net profit figure of S$2.41 billion, and registered the smallest y-o-y decline in earnings, at 25.9%.

• Net interest income averaged S$3.6 billion, down an average 1.8% y-o-y. DBS was also the only one among the three that posted a gain in net interest income for the period – up 1.0% to S$4.79 billion.

• As at 30 June 2020, the three banks averaged a NPL ratio of 1.6%, edging up from 1.5% in the previous half-year. The trio also significantly raised their total allowances in 1H20 to fortify their balance sheets against multiple risks arising from COVID-19.

Singapore’s three listed banks, which have a combined market capitalisation of more than S$120 billion, averaged 4.2% total returns in August, outpacing 1.6% median returns of the top quartile of global banking stocks by market value. For a recently published Market Update on the trio’s price performances, click here.

In early August, DBS Group Holdings (DBS), Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) reported their financial results for the six months ended 30 June 2020. 

Earnings Highlights 

For the half year ended 30 June 2020, the three banks averaged a net profit of S$1.80 billion, down an average 32.5% y-o-y. DBS reported the highest net profit figure of S$2.41 billion, and registered the smallest y-o-y decline in earnings, at 25.9%.

Net interest income averaged S$3.6 billion, down an average 1.8% y-o-y. DBS was also the only one among the three that posted a gain in net interest income for the period – up 1.0% to S$4.79 billion.

Source: Company data

For 1H2020, the trio averaged a net interest margin (NIM) of 1.67%, versus an average of 1.83% in 1H2019. DBS posted the highest NIM of 1.74%, down from 1.90% in the previous period. The three banks averaged a Non-Performing Loan (NPL) ratio of 1.6% as at 30 June 2020, edging up from 1.5% in the previous half-year.

Source: Company data

Outlook

DBS (SGX:D05)

• Total allowances increased five-fold to S$1.94 billion as general allowances of SGD 1.26 billion were conservatively set aside to fortify the balance sheet against risks arising from the COVID-19 pandemic.
• The charge increased the amount of general allowance reserves by 50% to S$3.80 billion, 24% above the minimum requirement set by the MAS.
• Total allowance reserves rose to S$6.72 billion, which exceeded non-performing assets and boosted allowance coverage to 106% and to 199% when collateral was considered.
• Loan growth remained resilient, and is expected at 5% for full year led by non-trade corporate loans.
• Full-year NIM expected to come in at around 1.60%.
• Several fee income streams improving from trough in April as lockdowns ease: 
  • Cards and bancassurance rebound in June but remain below pre-Covid levels.
  • Wealth management investment income rebounds strongly from trough in April to pre-Covid record levels.
• Investment banking pipeline healthy, market-dependent.
• Market conditions remain conducive for Treasury Markets income and for customer flows.
• Unrealised MTM gains in investment securities provide cushion for lower NIM.
• Ongoing review of cost structure.
• Strong operating performance amidst severe macroeconomic headwinds in first half reflects resilience of franchise.
• Capital and liquidity remain strong; well-positioned to continue supporting customers and the community through the difficult months ahead.

Click here for full results release.

OCBC (SGX:O39)

• As at 30 June 2020, allowance coverage against total NPAs of 101% was well above the 78% a year ago.
• Coverage against unsecured NPAs of 284% was also higher as compared to 252% in the previous year.
• The Group significantly raised its allowances in 1H20, with total allowances charged to the income statement of S$1.41 billion substantially higher than the S$360 million a year ago; the S$1.05 billion y-o-y increase in allowances comprised:
  • S$579 million increase in allowances for non-impaired assets (ECL stage1 and 2) to S$614 million, which included S$197 million in macro-economic variable (MEV) adjustments, and S$300 million in management overlays above the ECL model requirements, reflecting prudent steps taken to buffer the portfolio on a forward-looking basis, in view of the very uncertain market and economic outlook.
  • S$468 million rise in allowances for impaired assets to S$793 million.
• Allowances in 1H20 largely comprised allowances made for a Singapore-based corporate customer in the oil trading sector, first recognised in 1Q, and with additional allowances made in 2Q to conservatively write down the carrying value of the existing offshore support vessels (OSV) NPLs in view of the poor outlook for the sector.
  • The decline in OSV employment was further aggravated by significantly reduced oil demand as a result of the prolonged COVID-19 pandemic.
• With the ongoing pandemic and rising geo-political risks, the near-term market outlook is very uncertain.
• Despite the unprecedented size of government and central bank relief programmes extended across the world, business and consumer sentiments continued to be weak.
• The emergence of economies towards the road to recovery will be slow and challenging.
• It’s important for banks to defensively shore up their balance sheet and prepare for the slow recovery; this is exactly what OCBC has done since the start of the pandemic crisis:
  • We protected our customer franchise, managed our expenses in line with income expectations, increased our allowance coverage, preserved our capital and raised our capital efficiency to position for the future post-pandemic.
  • We will continue to contain all discretionary expenditure, including management compensation.

Click here for full results release.

UOB (SGX:U11)

• The Group continued to strengthen its balance sheet proactively with S$379 million of allowance for non-impaired assets set aside in 2Q20 amid sustained weakness in macroeconomic conditions.
• With its Common Equity Tier 1 (CET1) ratio still strong at 14.0% and ample liquidity support, the Group is well-positioned to navigate the uncertainties ahead.
• Across the region, the Group has supported more than one million individual and business customers with loan moratoria and other relief measures that amount to about 16% of our total loans.
• Our strong balance sheet, robust capital and liquidity positions equip us well to navigate the uncertain macro environment ahead and in sharpening our service and digital capabilities:
  • These include the recent expansion of our mobile-only digital bank, TMRW, to Indonesia, to serve the needs of the young and digitally-savvy population there.
• We remain confident of Asia’s fundamental strengths and prospects and uphold our long-term commitment to building a sustainable franchise in the region.

 Click here for full results release.