Published February 5, 2009

Analysts see tougher times for banks

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SLOWING loan growth, mounting losses from bad debts and falling fee income from slumping capital markets will cut quarterly earnings for banks in Singapore and Malaysia by as much as a third, with an even rougher ride expected in 2009 as the global economy worsens.

Slowdown ahead: Analysts expect DBS to take a hit from writedowns on loans and derivatives, and its two main markets, Singapore and Hong Kong, are slipping deeper into recession

DBS Group, South-east Asia's biggest by assets, has already warned that its fourth-quarter earnings will be lower compared to the third-quarter.

Analysts expect DBS to take a hit from writedowns on loans and derivatives, and its two main markets, Singapore and Hong Kong, are slipping deeper into recession.

'We expect Singapore banks' profit to have shrunk 19 per cent quarter on quarter and 31 per cent year-on-year in the fourth-quarter,' Credit Suisse's Sanjay Jain and Anand Swaminathan wrote in a research note.

Credit Suisse said non-performing loans would start to show up in Singapore banks in the fourth quarter because the small city-state has a very open economy, in contrast to banks in countries with larger domestic demand such as India and Thailand.

Singapore's economy shrank the most on record in the fourth-quarter of 2008 and the government has forecast a 5 per cent contraction this year as the global downturn badly hurts the trade-dependent country.

Singapore bank loans grew 16.6 per cent in 2008, but contracted month-on-month in November and December as recession dampened corporate and consumer spending.

Thai banks kicked off the earnings season for South-east Asian lenders earlier this month, with Bangkok Bank, the country's biggest, reporting a 27 per cent rise in quarterly profit, thanks to strong loan growth and higher margin on lending.

Analysts in Malaysia do not provide quarterly forecasts, but Malaysian bank earnings are expected to fall largely due to rising bad debt and faltering capital markets.

Malaysia's economic growth is expected to slow to 1.5 per cent this year from an estimated 5.5 per cent in 2008, Fitch Ratings said on Monday, which could see more loans go sour. Maybank, the country's biggest lender, has already seen evidence of weakness in the consumer business, notably credit cards, hire-purchase and mortgages, Citigroup said in a report.

'We expect more downside in the coming months with the expected rise in unemployment and weaker manufacturing sector,' Citigroup analysts said.

Bank of America/Merrill Lynch said Malaysian banks could also suffer from a drop in net interest margins after a surprise 75 basis point rate cut by the Malaysian central bank. -- Reuters