latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/singapore-banks-face-uphill-task-to-repeat-2023-profit-growth-79694498 content esgSubNav
In This List

Singapore banks face uphill task to repeat 2023 profit growth

Blog

Banking Essentials Newsletter: September 18th Edition

Loan Platforms: Securing settlement instructions and prioritising the user experience

Blog

Navigating the New Canadian Derivatives Landscape: Key Changes and Compliance Steps for 2025

Blog

Getting an Edge with Services: Driving optimization by embracing technological innovation


Singapore banks face uphill task to repeat 2023 profit growth

Singapore's biggest lenders face an uphill battle to replicate 2024's strong profits due to tepid loan growth in an environment of higher-for-longer interest rates.

DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. Ltd. and United Overseas Bank Ltd. are expected to see significant jumps in net income in 2023 compared to previous years, as the increase in global interest rates boosted net interest margins amid post-pandemic economic recovery. DBS will hit S$10.20 billion in net income in 2023 compared to S$8.19 billion in 2022, according to analyst estimates compiled by S&P Global Market Intelligence. OCBC is expected to hit S$7.07 billion in 2023 against S$5.75 billion at the end of 2022, while UOB is forecast to reach S$5.79 billion at the end of this year from S$4.82 billion a year earlier, the analyst estimates show.

But as interest rates have seemingly plateaued and are expected to start easing in 2024, maintaining this strong performance will be a challenge. At the same time, lenders face a weak outlook for new loans as higher rates mean companies have a general reluctance to take on debt.

DBS could see its net income drop in 2024 from 2023, while OCBC and UOB will see only marginal gains, according to the analyst estimates.

"The banks had a strong year with core-earnings growing 33% YOY in the first 9-months," Thilan Wickramasinghe head of research Singapore at Maybank Securities, told S&P Global Market Intelligence in an email. The lenders overcame challenges — including the negative impacts of the US banking crisis in March and a slide in wealth management income as customers chose to reduce risk — as higher net interest margins and benign nonperforming loans supported profits, Wickramasinghe said.

Other challengers will emerge in 2024. With the US Fed has indicating that interest rates have peaked, further loan yield hikes will be tougher and funding costs will rise. "We think profitability growth could flatten out or marginally retreat in 2024," Wickramasinghe said.

SNL Image

SNL Image

SNL Image

Positive outlook

Singapore was among the first central banks in Asia-Pacific to start tightening its monetary policy in October 2021 as inflationary pressures started to build. The central bank, which uses currency as its monetary policy tool since external trade dwarfs the island nation's economy, held steady at its last review in October, an indication that it was in a wait-and-watch mode for further action. Singapore is among the Asian nations most closely tied to global trends as its banks have significant operations across the region and because its economy relies heavily on trade.

Banks' CEOs are, however, positive on the outlook for 2024.

DBS will be able to "wind up holding net profits around this year's level, which we are fairly confident will cross S$10 billion," CEO Piyush Gupta said during the bank's Nov. 6 earnings call. "The challenge was loans. At the beginning of the year, I had thought we might be able to get mid-single-digit growth. By the middle of the year, I said it would be low-single-digits. As it turned out, loan growth has been even more subdued," Gupta said.

Loans may grow at a "tepid" rate of around 3% for 2023 and 2024, according to Ivan Tan, an analyst at S&P Global Ratings. "Companies have become more circumspect about taking on loans as borrowing costs have gone up, with some paying down their obligations."

SNL Image

SNL Image

Noninterest income

UOB CEO Ee Cheong Wee expects mid-single-digit loan growth and margins to stay at current levels. "The macroeconomic environment ahead should remain bumpy, but our strong balance sheets and diversified revenue drivers will help smoothen the ride," Wee said during the bank's Oct. 26 earnings call. The bank's fee income, however, may see double-digit growth in 2024.

Fee income has garnered more attention as loan growth has stalled among banks. Wee said UOB has sought to diversify its income sources. "Today, fees become very important; wealth management fees, credit card fees and all these related fees that we are focusing on. You don't just focus on one single loan, right? The capability is there," Wee said.

Rival OCBC also reported a rebound in fee income in the third quarter. Still, the bank's CEO, Helen Wong, had a word of caution. "We need to see that momentum [in fee incomes] going. I think investors are still sitting a bit on the bank as regards to whether they would go actively into more wealth management activities," Wong said during the bank's Nov. 10 earnings call.

Despite the challenges, Singaporean banks are quite resilient, said Michael Makdad, equity analyst at Morningstar. "Profit performance has been somewhat better than expected ... because net interest margins have stayed wide amid 'higher-for-longer' interest rates. Fee income didn’t rebound as strongly as hoped, but I think cost control has been somewhat better than expected given the high rate of global inflation. A period of low profit growth is more likely than any outright decline," Makdad said.