SINGAPORE -- Three major Singapore banks reported a rise in net profit for the quarter ended March, as nonperforming loan ratios in the oil and gas sector stabilized.
The banks attributed the stronger performance to non-interest income such as wealth management fees, although earnings from lending was squeezed due to low interest rates.
Oversea-Chinese Banking Corp. announced Tuesday a 14% year-on-year rise in net profit to 973 million Singapore dollars ($690 million), a larger jump in bottom line compared with DBS Group Holdings and United Overseas Bank, or UOB.
The major growth driver for OCBC was its wealth management business. Income from this segment surged 50% to S$724 million. The acquisition of Barclays' Asian wealth business, completed in November 2016, played a large part in offsetting a 3% drop in net interest income. Income from the lending activities contracted because of a 13 basis-point decrease in interest margins from a year ago.
OCBC was bouncing back from a net profit fall in the fourth quarter of 2016. This was also the case for DBS and United Overseas Bank. DBS reported a 3% increase in net profit to S$1.245 billion in the March quarter, while UOB said earnings increased 5% to S$807 million. Both banks, like OCBC, suffered from lower interest margins, but strong non-interest income offset the dent.
OCBC chief executive Samuel Tsien said the rise in fee income from wealth management reflected a "risk-on feeling" during the quarter. In the March quarter, Bank of Singapore, the private banking arm of OCBC, did well in fund sales as "people were willing to leverage, and people were willing to make more investments," Tsien said.
Nonperforming loans are also bottoming out, as oil prices have come off their trough. The NPL ratio for the three banks stayed in a range of 1.3% to 1.5% at the end of March, slightly higher from a year ago, but unchanged from the end of 2016. The creation of NPL during the March quarter for OCBC, at S$391 million, was the lowest in the past six quarters.
Singapore banks were hammered last year by weak oil prices. As global oil majors slowed exploration and production activities, demand for oil field service providers and equipment suppliers evaporated, many of whom were customers of the banks. Companies such as Swiber Holdings and Ezra Holdings are in the process of debt restructuring.
Nonetheless, the banks are staying cautious. There still remains "uncertainty" in the oil and gas sector, DBS Chief Executive Piyush Gupta said to reporters on May 2. OCBC's Tsien said that the NPL increase has "stabilized," but added that "it is premature" to say it has peaked.
Outside of the oil and gas sector, however, the outlook is brighter. "Apart from the issues in the oil and gas sector, the asset quality of our broader portfolio was stable. We believe new NPL inflows have peaked and will ease going forward," UOB Chief Executive Wee Ee Cheong said at an annual general meeting late April.
DBS' Gupta said that the bank saw improvement in bottom line as well as revenues from Greater China, South [and] Southeast Asia, and rest of the world. He said: "It reflects some degree of turnaround in the global economic environment."
Nomura banking analyst Marcus Chua agreed that the worst might be over. "We are unlikely to see further chunky [specific provisions] that will come along, unless an unexpected major default happens ... We believe that the worst of [oil and gas] is over for the Singapore banks, taking into account current oil price levels."