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Nikkei Markets

Singapore banks sanguine about outlook amid Covid-19 spread

OCBC, UOB post record annual profit driven by wealth management, trading income

Earlier Friday, OCBC reported a 34% increase in fourth-quarter net profit to S$1.24 billion, helped by a surge in trading income as well as strong growth in wealth management and contributions from insurance arm Great Eastern Holdings. 

SINGAPORE (Nikkei Markets) -- Oversea-Chinese Banking Corp and United Overseas Bank, the smaller members of Singapore's big three banking groups, said they are confident of riding out the economic uncertainties posed by the coronavirus outbreak in the region although it would have some impact on their financials.

Samuel Tsien, CEO of OCBC, the city-state's number two lender, said the bank's revenue this year could be about 2% below potential while problem loans could increase by a few basis points. But the bank also pointed to last year's strong growth in assets under management as generating new fee income.

In addition, OCBC has lowered its cost of funding by increasing the share of current account and savings deposits to total deposits.

Separately, UOB said it expects downward pressure in customer margins as well as a slight uptick in credit costs given current conditions, but these would be offset by sustained momentum in fee income growth led by wealth management.

Both banks reported record full-year earnings earlier in the day.

Their outlook is in line with guidance provided by DBS Group Holdings, Southeast Asia's largest lender by assets, which forecast last week the Covid-19 outbreak would most likely reduce 2020 revenue by 1-2% while specific provisions for bad debt could potentially rise a few basis points.

All three lenders have promised to assist customers affected by the spread of the coronavirus through various measures such as the restructuring of existing loans.

Singapore, a major Asian business center, has been hard hit by the plunge in tourism and air travel following the outbreak of the coronavirus in China, which has since spread to over 20 countries. Earlier this week, the Singapore government cut its growth outlook for the year to between minus 0.5% and 1.5%, indicting the possibility of a full-year recession.

The government subsequently unveiled numerous measures to help companies in its budget for the financial year beginning April, including wage support, tax rebates and working capital loans.

Several of these measures will also benefit the banks. For example, a working capital loan scheme for small and medium-sized enterprises will see the government assuming 80% of the risk for loans of up to 600,000 Singapore dollars ($428,143).

Earlier Friday, OCBC reported a 34% increase in fourth-quarter net profit to S$1.24 billion, helped by a surge in trading income as well as strong growth in wealth management and contributions from insurance arm Great Eastern Holdings. The results were better than the consensus estimate of S$1.13 billion in a Refinitiv poll.

For the full year, OCBC's net profit grew 8% to a record S$4.87 billion.

The group's wealth management income, comprising income from insurance, private banking, asset management, stockbroking and other products, rose 20% to a new high of S$3.40 billion.

At UOB, fourth-quarter net profit rose 10% to S$1.01 billion from a year ago as trading and investment income rose nearly four-fold. The bank also reported healthy momentum in wealth management and higher credit cards fees during the quarter.

For the whole of 2019, UOB's net profit rose 8% to S$4.34 billion.

UOB also said it plans to launch TMRW, its digital-only bank, in Indonesia this year. TMRW was first launched in Thailand in March.

Both UOB and OCBC downplayed the threat posed by their digital counterparts in Singapore, noting that they have already incorporated artificial intelligence and various digital technologies into their existing banking processes.

At UOB for instance, 39% of customers in Singapore are omni-channel, which means they deal with the bank through a mix of traditional and digital platforms. These customers account for 51% of total consumer banking revenue, a UOB spokeswoman said.

The Monetary Authority of Singapore will award as many as five digital banking licenses this year, including two full bank licenses that will let the holders compete in both the retail and corporate markets. Applicants for the full bank licenses include a joint venture between ride-hailing giant Grab and Singapore Telecommunications and a consortium led by gaming company Razer.

-- Kevin Lim

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