Property pickup buoys Singapore banks' glowing growth prospects

Housing and bridging loans are expected to receive a boost from the price boom.

The uptrend in Singapore’s property sector is expected to lend further assistance to the already strong performance of local banks, according to BMI Research.

Housing and bridging loans, which account for a third (30.5%) of overall loans and over 75% of consumer loans, are expected to receive a boost from the heated property market after residential property prices picked up at a faster 5.4% YoY in Q1.

Total credit expansion, which represents loans denominated in Singapore dollars, also clocked in at a stable 5.4% YoY in March. BMI expects credit growth to rise to 6.4% in 2018 thanks to sustained demand for corporate loans.

The strong performance of the lion city’s lenders are also buoyed by low levels of stressed assets as banks have moved past the issue of deteriorating asset quality in the oil and gas sector amidst a recovery in global crude oil prices.

The average NPL ratio for DBS, UOB, and OCBC clocked in at 1.57% in Q1 as asset quality continues to stabilise.

Also read: Wealth management fees buoy Singapore banks' earnings in Q1

“We remain optimistic on the prospects of the Singapore commercial banking sector over the coming quarters as it is likely to benefit from relatively healthy loan growth, stable asset quality, and robust capital adequacy,” BMI noted.

Here’s more from BMI Research: 

Whilst growth in the manufacturing sector will likely moderate, the Singapore government's expansionary budget for 2018 will likely provide considerable support to economic and loan growth. For example, the government remains committed to planned infrastructure upgrades to ensure that Singapore is able to maintain its competitiveness (see ‘FY2018/19 Budget: Seeking A Balance Between LT Development & Fiscal Sustainability’, February 20). Construction and building loans account for 18.5% of overall loans, and are likely to recover from the 0.4% y-o-y contraction in March as upgrading projects are rolled out over the coming months.

In addition, the services sector continues to expand at a steady rate, supporting related loans. Indeed, Singstat’s Q218 Business Expectations (Services Sector) survey showed that a net weighted balance of 8% of firms expect more favourable business conditions for the period from Apr-Sep 2018 compared with Oct 2017-Mar 2018 (versus 3% in the previous survey).

Singaporean banks continue to be well capitalised, and we expect this to remain the case over the coming quarters. Their robust balance sheets will be helped by the continued ability to generate increased profitability. Indeed, the common equity Tier 1 capital ratio of DBS, OCBC, and UOB came in at 15.0%, 13.1%, and 14.9%, respectively, in Q118 (versus 15.4%, 12.2%, and 12.8% a year ago). The strong loss-absorption buffers should therefore allow the city’s banks to withstand any potential shocks in asset quality.