Singapore bank Q3 earnings – Macro conditions reigns

Post earnings guidance from DBS lurked on the cautious end, signalling growth while highlighting concerns over asset quality. This had weighed upon the performance of local bank shares in the third quarter, although reflation expectations lately aided regional bank shares on another leg up.

While growth is expected to sustain, the sentiment had not been strong for an outperformance in the upcoming Q3 earnings release, bringing the pace for the current rally into question.

Source: Bloomberg 

A scan of the latest consensus estimates finds that the expectation for growth continue to cut across all three local banks for Q3. Zooming into the revenue engines, one would find that the key component, loan, appears to be keeping its growth momentum. Bank loans based on the latest release have been seen at 5.9% and 5.1% growth respectively for July and August. With the resilient Q3 economic growth conditions and the upturn for the housing market, this may be the key consolation for the upcoming release. Concurrently, net interest margins (NIMs), the bank’s loan spreads, may also find neutral to mild upsides, gradually phasing in the marginal increment in the local SIBOR and SOR rates.

The flipside to this positive outlook remains with asset quality as concerns over non-performing assets sustained post Q2 earnings release. The root of these apprehension sits once again with the offshore and marine sector, eerily reminding us of last Q3’s situation. While a repeat of the drastic turn in non-performing loans is unlikely, credit costs may remain a drag on profits. Of the lot, one would be reminded that DBS remains the bank with the highest exposure to the beleaguered sector, making a foray there one to be done with caution.

With the mix, we could see the intensity of Q3 earnings impact being a mild one for share prices, so long we are not met with disappointments. A better guide for local bank shares may remain with the broad macro conditions. Recent anticipation for US tax overhaul and the updates to the Federal Reserve board have been and may remain the inspiration for local bank shares, while resilient economic conditions provides support. Look instead to these factors post earnings.