Lower earnings from regional franchises loom for Singapore banks

Who will suffer badly?

According to CIMB, one factor that may have a negative impact on Singapore banks’ earnings is the likely lower translated earnings from their ex-Singapore regional franchises.

Here's more from CIMB:

In the Jul-Sep period, the HK$ was relatively flat against the S$, but the RM (-2%), the THB (-2.5%) and the Rp (-13%) registered notable drops against the S$.

As such, even if we do not factor in any major deterioration in the credit costs yet, the simple equation is that the translated earnings from the banks’ ASEAN franchises will be softer in 3Q13.

Obviously, banks with a larger proportion of earnings from Indonesia will be hit harder. Among the three banks, the bank with the largest proportion of ASEAN earnings compared to the group’s 1H13 earnings is OCBC (33%), followed by UOB (24%).

Other than the transitory effect of currency movements, we believe that investors of Singapore banks will be increasingly focused on signs of credit quality deterioration in the regional markets.

Given that the Singapore banks are viewed as safe haven banks, the last thing an investor wants is to be blindsided by unforeseen credit losses.