Singapore lenders to report healthy Q1 loan growth as firms amp liquidity

But credit charges are expected to rise further.

Singapore’s big three banks are likely to report healthy loan growth in Q1 with customers having increased their liquidity reserves to face the escalating COVID-19 pandemic, reports Maybank Kim Eng. However, net interest margins (NIM) will continue to contract on the back of falling interest rates, whilst credit charges are expected to accelerate further in the quarter.

Credit charges skyrocketed 86% QoQ in Q4 2019, the largest jump since the Global Financial Crisis, and this momentum is forecasted to carry over to Q1, according to Maybank Kim Eng analyst Thilan Wickramasinghe. “We expect Q1 2020 momentum to further accelerate, especially contributed by specific credits in North Asia—which saw pandemic-related shutdowns—together with increased cautionary allowances,” he noted.

This rise does not yet reflect lockdowns throughout Asia and the circuit breaker measures in Singapore, with the brunt of the charges likely to come in Q2 onwards.

A contraction in net interest margins (NIMs) may likely be observed across OCBC, UOB, and DBS, added Wickramasinghe, noting that the average SIBOR should be 21bps lower.

On the upside, system loans saw strong growth in February with a 8.2% YoY rise, thanks to companies who bulked up on liquidity ahead of the pandemic, the report noted. As such, loan growth is expected to remain resilient during the quarter, although this would begin to lose momentum in Q2.

Non-interest income remains a mixed bag, with trading income likely to show resilience due to the contraction of interest rates during the period. However, the banks may report losses in equity holdings.

Further, fee incomes may see pressure especially in the wealth management sector as clients pull back from higher-risk, speculative products.