SINGAPORE -- Southeast Asia's largest banks are expecting slower loan growth in 2019 as the impact of the U.S.-China trade row ripples through regional economies, executives say after reporting strong results for the third quarter.
Singapore-based DBS Group Holdings, and Oversea-Chinese Banking Corp. -- the two of the top three banks in the region -- signalled more difficult times ahead but voiced confidence in their ability to ride out any turbulence.
DBS chief executive Piyush Gupta, unveiling a 76% rise in net profit for the three months to the end of September, said Monday there would be "some" impact from the U.S.-China trade war, although it "wouldn't be as material as people think." Nevertheless, weaker market sentiment would result in lower fee income, he admitted.
Gupta said that 5% to 6% overall loan growth was achievable in 2019 but this would mark a smaller expansion than the 8% marked for the year to end-September, as the bank factored in macroeconomic uncertainties including the trade tensions.
But trade loans at DBS have already declined by 6% during the third quarter, although this did not mark a deterioration in overall asset quality, according to the bank.
"The trade war has affected the Singapore banks in terms of trade finance loans, which came down or posted weak growth during the third quarter. Moreover, poor market sentiment has led to lower trading gains for some banks," said Eugene Tarzimanov, a banking sector analyst at Moody's Investors Service.
OCBC CEO Samuel Tsien, reporting a 12% rise in net profit for the quarter on Nov.1, warned that "the trade tensions will start to reflect itself in the economy the next year." He added, however, that he did not expect a significant impact in the current year.
OCBC's loans grew 10% in the year to end-September, but Tsien expects that figure to shrink to "mid- to high-single digit level" next year.
Naming the markets that OCBC operates in, Tsien said the greatest impact would be felt in the greater China region -- Hong Kong, Taiwan, Macau and mainland China -- followed by Singapore and Malaysia, and the least in Indonesia where the economy is "primarily internally driven."
Tsien said OCBC estimates that the trade tensions would drag down Asia's economic growth by 0.5% to 0.7% next year in the worst case, if all additional tariff threats on both sides are carried out.
"Banks in Singapore are entering into a more challenging operating environment that is characterized by somewhat slower economic growth in the region," said Eugene of Moody's. "This will translate into slower loan growth for the Singapore banks, and a slight deterioration in the quality of small and medium enterprises' loans that are more sensitive to the global and regional trade conditions."