SINGAPORE — Shares of Singapore’s high banks jumped within the lead-up to their third-quarter earnings this week as the worldwide financial restoration beneficial properties momentum.
OCBC and UOB are scheduled to kick off third-quarter earnings season for Singapore-listed banks on Wednesday, whereas DBS is predicted to report on Friday.
DBS Group Holdings, the biggest of the three Singapore-listed banks, hit a recent 52-week excessive on Thursday. The inventory has climbed 25.9% this 12 months as of Friday.
The opposite two banks, Oversea-Chinese language Banking Corp and United Abroad Financial institution, have additionally inched nearer to their 52-week highs. OCBC has gained round 17.3% this 12 months, whereas UOB has risen 18.4%.
All three banks have crushed the benchmark Straits Instances Index, which rose 12.5% up to now this 12 months.
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Banks have been among the many strongest performing sectors in inventory markets globally this 12 months, mentioned Geoff Howie, market strategist on the Singapore Trade.
“Interest rate expectations have been a key driver of international bank stocks in 2021,” Howie mentioned in a report in mid-October.
The yield for 10-year U.S. Treasury rose over the past month as markets began pricing in additional rate of interest hikes than what the Federal Reserve has indicated. It comes as a restoration within the U.S. financial system and disruptions to international provide chains push up inflation.
Greater rates of interest are usually good for the revenue margins of banks. Rising charges additionally have a tendency to level to a strengthening financial system, which can imply fewer mortgage defaults.
Singapore’s central financial institution manages financial coverage by setting the trade price — as an alternative of rate of interest. Because of this, home rates of interest are influenced by international charges.
Earnings preview
The three Singapore banks have reported improved earnings in the last few quarters as the global economy recovers from the Covid-19 pandemic. Analysts said the momentum will likely continue.
Here’s what analysts are expecting from the banks’ third-quarter report cards, according to estimates compiled by Refinitiv as of Monday:
Third-quarter earnings estimates
“As in the previous quarter, we expect all banks to report robust earnings growth (YoY) on lower credit costs,” said David Lum, an analyst with brokerage Daiwa Capital Markets.
Credit costs refer to the amount of reserves that banks set aside in anticipation of loan losses.
Like many banks globally, the Singapore lenders made those provisions last year when Covid weighed down economic activity — but the banks started winding down the provisions this year as the global economy bounced back.
Lum said in an October report that wealth management could do well for the Singapore banks, but trading and market-related income might come under pressure in the third quarter.
Greater China exposure
Greater China accounted for 30% of DBS loans in the first half of 2021, according to Krishna Guha, equity analyst at investment bank Jefferies. The figure for OCBC and UOB stood at 25% and 16%, respectively, he said in a September report.
Slightly more than half of those Greater China loans was from Hong Kong, said Guha.
All three banks have sufficient buffer to withstand potential stresses in their Greater China portfolio, the analyst said. But lingering uncertainty could still hurt sentiment and future growth prospects, he added.
For now, dividend yield and reasonable valuation would support Singapore bank stocks, said Guha.
Jefferies has maintained its “buy” rating for all three banks.