Golden years - where are they?
<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Big 3 banks warn of hard times
</TR><!-- headline one : end --><TR>No cheer even though results of DBS and UOB surpass expectations </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Grace Ng
</TD></TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->TWO of Singapore's three local banks have defied pessimistic market expectations that financial market turmoil had choked their second-quarter showings.
Still, despite better-than-expected results, shareholders of DBS Group Holdings and United Overseas Bank (UOB) are hardly cheering.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story -->RELATED LINKS
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Second-quarter resuls for the three local banks
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</TD></TR></TBODY></TABLE>In fact, they are probably more ner-
vous now after listening to the grim chorus of warnings about choppy waters ahead from the chiefs of all three local banks.
DBS reported its second-quarter results yesterday while UOB reported its results on Tuesday. OCBC Bank, which also reported yesterday, was the odd one out, posting worse-than-expected results.
On Tuesday, UOB chief executive Wee Ee Cheong set the tone, observing that the 'past six months have been challenging' and that loans growth in Singapore and across South-east Asia will moderate in the coming months.
DBS chief Richard Stanley put it even more starkly yesterday: 'These are the worst times I can ever remember...we have a way to go till the end of this crisis.' He also warned loans growth will 'slow to low double-digits'.
OCBC chief executive officer David Conner said: 'Loans growth, without question, is slowing, as economies in the region slow down.'
Indeed, the credit crunch, inflation and slowing growth are starting to take a toll on the banks.
The combined net profits of DBS, UOB and OCBC were flat at $1.68 billion for the three months ended June 30 compared to a year ago. This is in stark contrast to the same period last year, when their combined net profits, excluding one-off gains, jumped by 35 per cent to $1.77 billion.
Second-quarter double-digit loans growth was a key factor that helped prop up the three banks' results.
DBS stunned the market with a 16 per cent jump in second-quarter net profits, while UOB delivered a better-than-expected 2.7 per cent increase.
But OCBC's net profits were weaker than expected, sliding 20 per cent. This was partly due to a drastic drop in contributions from $116 million a year earlier to $3 million in the second quarter from its insurance unit, Great Eastern (GE).
Mr Conner said 'significant volatility in interest rates' eroded the value of GE's fixed-income portfolio. He added that the insurer's fundamentals and OCBC's core banking business remained sound.
Indeed, analysts noted OCBC's net interest margins (NIM), one indicator of how profitable a bank's lending is, had its best showing at 2.24 per cent. DBS' NIM fell to 2.04 per cent from 2.21 per cent a year earlier as yields on Singapore corporate loans fell faster than funding costs. UOB's rose to 2.23 per cent from 2.04 per cent. But the market is looking for clues on how the banks can remain profitable in coming months.
Amid volatile equity markets, all three banks' non-interest income were hit by lower fee income. And analysts expect this trend to continue in the coming quarters.
So the banks will lean more heavily on their traditional business of lending - and do it the smart way.
Mr Stanley and Mr Wee both declared that their respective banks will be more concerned with targeting the right customer segments to protect margins and asset quality rather than just market share.
Mr Conner noted that some sectors, like the oil-related industry, 'remain attractive'. The bank would 'go great guns' on lending to such segments while staying cautious on those with exports to the slowing US economy, he said.
DBS's greater strategic focus on the consumer and enterprise segments in Singapore and Hong Kong - which contribute 90 per cent of profits - is a good move to boost revenues, say analysts.
Investors may also take some comfort that the banks have enough capital cushion to weather any unexpected deterioration in credit quality - at least, for now. Allowances coverage for non-performing loans is at 116 per cent for DBS, 128 per cent for UOB and 122 per cent for OCBC.
The banks also appear to have put the thorny issue of collateralised debt obligations, which are linked to the credit crunch, behind them after conservatively making allowances for these investments. [email protected]
<TABLE cellSpacing=0 cellPadding=0 width="100%" border=0><TBODY><TR>Big 3 banks warn of hard times
</TR><!-- headline one : end --><TR>No cheer even though results of DBS and UOB surpass expectations </TR><!-- Author --><TR><TD class="padlrt8 georgia11 darkgrey bold" colSpan=2>By Grace Ng
</TD></TR><!-- show image if available --></TBODY></TABLE>
<!-- START OF : div id="storytext"--><!-- more than 4 paragraphs -->TWO of Singapore's three local banks have defied pessimistic market expectations that financial market turmoil had choked their second-quarter showings.
Still, despite better-than-expected results, shareholders of DBS Group Holdings and United Overseas Bank (UOB) are hardly cheering.
<TABLE width=200 align=left valign="top"><TBODY><TR><TD class=padr8><!-- Vodcast --><!-- Background Story -->RELATED LINKS
<!-- Audio --><!-- Video --><!-- PDF -->
<!-- Photo Gallery -->
</TD></TR></TBODY></TABLE>In fact, they are probably more ner-
vous now after listening to the grim chorus of warnings about choppy waters ahead from the chiefs of all three local banks.
DBS reported its second-quarter results yesterday while UOB reported its results on Tuesday. OCBC Bank, which also reported yesterday, was the odd one out, posting worse-than-expected results.
On Tuesday, UOB chief executive Wee Ee Cheong set the tone, observing that the 'past six months have been challenging' and that loans growth in Singapore and across South-east Asia will moderate in the coming months.
DBS chief Richard Stanley put it even more starkly yesterday: 'These are the worst times I can ever remember...we have a way to go till the end of this crisis.' He also warned loans growth will 'slow to low double-digits'.
OCBC chief executive officer David Conner said: 'Loans growth, without question, is slowing, as economies in the region slow down.'
Indeed, the credit crunch, inflation and slowing growth are starting to take a toll on the banks.
The combined net profits of DBS, UOB and OCBC were flat at $1.68 billion for the three months ended June 30 compared to a year ago. This is in stark contrast to the same period last year, when their combined net profits, excluding one-off gains, jumped by 35 per cent to $1.77 billion.
Second-quarter double-digit loans growth was a key factor that helped prop up the three banks' results.
DBS stunned the market with a 16 per cent jump in second-quarter net profits, while UOB delivered a better-than-expected 2.7 per cent increase.
But OCBC's net profits were weaker than expected, sliding 20 per cent. This was partly due to a drastic drop in contributions from $116 million a year earlier to $3 million in the second quarter from its insurance unit, Great Eastern (GE).
Mr Conner said 'significant volatility in interest rates' eroded the value of GE's fixed-income portfolio. He added that the insurer's fundamentals and OCBC's core banking business remained sound.
Indeed, analysts noted OCBC's net interest margins (NIM), one indicator of how profitable a bank's lending is, had its best showing at 2.24 per cent. DBS' NIM fell to 2.04 per cent from 2.21 per cent a year earlier as yields on Singapore corporate loans fell faster than funding costs. UOB's rose to 2.23 per cent from 2.04 per cent. But the market is looking for clues on how the banks can remain profitable in coming months.
Amid volatile equity markets, all three banks' non-interest income were hit by lower fee income. And analysts expect this trend to continue in the coming quarters.
So the banks will lean more heavily on their traditional business of lending - and do it the smart way.
Mr Stanley and Mr Wee both declared that their respective banks will be more concerned with targeting the right customer segments to protect margins and asset quality rather than just market share.
Mr Conner noted that some sectors, like the oil-related industry, 'remain attractive'. The bank would 'go great guns' on lending to such segments while staying cautious on those with exports to the slowing US economy, he said.
DBS's greater strategic focus on the consumer and enterprise segments in Singapore and Hong Kong - which contribute 90 per cent of profits - is a good move to boost revenues, say analysts.
Investors may also take some comfort that the banks have enough capital cushion to weather any unexpected deterioration in credit quality - at least, for now. Allowances coverage for non-performing loans is at 116 per cent for DBS, 128 per cent for UOB and 122 per cent for OCBC.
The banks also appear to have put the thorny issue of collateralised debt obligations, which are linked to the credit crunch, behind them after conservatively making allowances for these investments. [email protected]
