COVID-19 pulls down profits of top Singapore banks in Q2, says GlobalData

Although Singapore boasts a resilient financial system, top players of the country’s banking sector suffered a sharp decline in their quarterly profits, reflecting sentiments similar to the country’s quarterly GDP growth, says GlobalData, a leading data and analytics company.

DBS Group Holdings (DBS), Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB), which are not only the largest in the country but also are among the leaders in the APAC region, recorded a sharp fall in their net profits for the quarter ended 30 June 2020 (Q2 2020) as compared to the corresponding period in the last year.

Anindya Biswas, Company Profiles Analyst at GlobalData, says: “Singapore has been one of the worst hit countries in the APAC region, as COVID-19 pandemic forced the country into a technical recession. The banking sector was not spared, with UOB registering a drop of 17.7% in net profit after tax in Q2 2020 compared to Q1 2020. However, the decline was partially offset by a QoQ increase in the net profits of DBS and OCBC, which rose 7%, and 4.6%, respectively.”

This small improvement from Q1 2020 cannot hide the sharp fall in the profitability experienced by these banks compared to Q2 2019. OCBC reported a drop of 40.3% in the net profit in Q2 2020 as compared to that in Q2 2019, whereas DBS and UOB registered declines of 22.2% and 39.8%, respectively, during the same period.

Mr Biswas adds: “OCBC remained the only local bank in Singapore to post a growth in its QoQ revenue by 5.4%, thereby establishing itself as the country’s most resilient banking entity, while UOB and DBS reflected a QoQ decline in their revenue by 6.1%, and 7.5%, respectively. OCBC’s growth was driven by an increase in non-interest income as a result of rise in trading income and higher insurance profits.”

UOB reported YoY decline in its total income by 12.5% in Q2 2020 while DBS and OCBC reflected a marginal increase of 0.3% and 0.5%, respectively. Furthermore, in Q2 2020, DBS led the group with a net interest margin of 1.62%, followed by OCBC with 1.6% and UOB at 1.48%, as compared to 1.91%, 1.79%, and 1.81%, respectively, for the corresponding quarter in the previous year.

Mr Biswas concludes: “With uncertainty surrounding the COVID-19 situation and weak business conditions, net profits and revenues are expected to further decline as the companies are forced to write off loans, adjust wage subsidies and defer loan repayments in alignment with the government relief measures, raising the concern levels amongst the shareholders.”

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