[SINGAPORE] The strong run in wealth management income at Singapore\u2019s three local banks may be losing some steam in the third quarter, even as analysts predict continued pressure on interest margins.<\/p>\n
Still, they expect the sector\u2019s underlying asset quality and capital position to remain robust, even as the banks\u2019 exposure to artificial intelligence-related financing and the impact of rising bond yields come under closer scrutiny.<\/p>\n
UOB announces its third-quarter results on Nov 4, followed by DBS and OCBC on Nov 5 and 6, respectively.<\/p>\n
Wealth fees are expected to normalise for DBS and OCBC after a strong showing in the second quarter, although the underlying wealth momentum \u201cremains resilient\u201d, Joanna Cheah, equity analyst at Jefferies, told The Business Times.<\/em>\u00a0<\/p>\n Softer equity markets are likely to weigh on transaction-driven fees at both banks, despite continued inflows, she added.\u00a0<\/p>\n Looking at overall fee income, Jefferies forecasts a quarter-on-quarter decline of 6 per cent at DBS, and 16 per cent at OCBC.\u00a0<\/p>\n Five decades of milestones and moments that shaped Singapore\u2019s success story – told through our headlines.<\/p>\n Explore BT50<\/span>\u00bb<\/span><\/p>\n<\/div>\n<\/div>\n <\/div>\n<\/div>\n UOB, however, could buck the trend, with net fee income projected to rise 8 per cent quarter on quarter, and 17 per cent year on year.<\/p>\n The bank is expected to benefit from stronger Q3 wealth fees, a recovery in card fees from a low base, and the recognition of loan-related fees deferred from the previous quarter, said Cheah.<\/p>\n For DBS, a cooling in wealth fees following Q2\u2019s 42 per cent jump should be viewed as \u201cnormalisation\u201d rather than a red flag, said Eric Xiao, head of sales for Asia at CMC Markets.<\/p>\n SEE ALSO<\/p>\n \u201cNet new money matters more,\u201d he said. \u201cWealth has to make up for falling interest income, so a weak number there is the real red flag.\u201d<\/p>\n Market watchers will be looking out for\u00a0 the banks\u2019 exposure to AI-related financing, particularly in the data centre sector.<\/p>\n DBS, OCBC and UOB, for example, are among the lenders on the S$5 billion financing<\/a> for global investment firm KKR and Singtel\u2019s acquisition of ST Telemedia Global Data Centres.<\/p>\n DBS has originated about S$25 billion in AI-related financing this year, and keeps a fraction of that on its balance sheet, which Xiao describes as \u201cthe slice that carries the risk\u201d.<\/p>\n \u201cWe aren\u2019t bracing for a loss cycle,\u201d he said. \u201cWe want to know how much of the money is in fund construction rather than operating assets, and whether tenants are creditworthy, power is secured, and repayment structures are sound.\u201d\u00a0<\/p>\n He added that while falling AI share prices would not automatically impair a loan, a shortfall in project cash flows or borrower support could lead to credit issues.<\/p>\n Bloomberg Intelligence analyst Rena Kwok said that while AI is a dominant theme, the immediate systemic credit risk \u201cremains contained\u201d for Singapore banks.\u00a0<\/p>\n Based on the banks\u2019 disclosures, their loan exposures to data centres are \u201cwell-diversified across markets and predominantly limited to hyperscalers\u201d, she said.\u00a0<\/p>\n Rising bond yields<\/a> could also affect the banks\u2019 trading income, which Cheah identified as a key uncertainty for the third quarter.<\/p>\n The recent October selloff in bank stocks<\/a> has raised concerns over the impact of rising bond yields on their capital positions.<\/p>\n Higher bond yields can erode the value of these banks\u2019 existing bond holdings, potentially weighing on book values and Common Equity Tier 1 (CET-1) capital ratios.<\/p>\n Jefferies\u2019 Cheah noted that valuations have been running ahead of their expected <\/strong>returns on equity, and that bank stocks had surged 70 per cent prior to the recent correction.<\/p>\n Jefferies estimated that a 40-basis-point rise in bond yields could translate to an illustrative 16 to 32-basis-point impact on CET-1 ratios, assuming a 2.5-year duration on the banks\u2019 investment securities.<\/p>\n Despite this, Kathy Chan, equity analyst at Morningstar, said that the pressure is \u201cmanageable\u201d.\u00a0<\/p>\n \u201cPressure on book value should be at least partly offset by organic capital generation through healthy earnings,\u201d she said.<\/p>\n The trajectory of the CET-1 ratio over the next few quarters will nevertheless be important in determining the banks\u2019 capacity for shareholder returns, she added.<\/p>\n Separately, analysts flagged that net interest margin (NIMs) compression remains a concern for the third quarter.<\/p>\n Cheah expects NIMs to bottom out around the fourth quarter before recovering. While rising interest rates should support bank margins, existing hedging arrangements could delay the benefits, she noted.<\/p>\n She added that banks are increasingly focusing on net interest income rather than margins alone, with stronger loan growth helping to support earnings.\u00a0<\/p>\n Morningstar\u2019s Chan also noted that Singapore banks benefit from \u201csticky, low-cost deposit bases in their home markets\u201d, keeping them well-positioned even if near-term NIM pressure persists.<\/p>\n Beyond interest margins, Xiao said investors should focus on loan repricing, deposit costs, recurring fees and signs of deteriorating credit quality, rather than temporary losses on securities on fluctuations in insurance income.<\/p>\n \u201cIf margins, customer activity and credit quality all weaken together, that\u2019s a different matter,\u201d he added.\u00a0<\/p>\n He cited JPMorgan\u2019s Q3 results, in which the bank recorded securities losses, but growth in underlying lending and wealth income.\u00a0<\/p>\n Even so, Xiao remained cautious about the attractiveness of Singapore bank stocks at current valuations.<\/p>\n \u201cEven a resilient quarter wouldn\u2019t make this an attractive entry point,\u201d he said.\u00a0<\/p>\n The local banks ended lower on Friday (Oct 30). DBS shed 0.9 per cent or S$0.67 to S$73.13, OCBC fell 0.2 per cent or S$0.05 to S$29.29, and UOB was down 0.3 per cent or S$0.13 at S$41.37.<\/p>\n<\/div>\n Analysts expect interest margins to stay under pressure, but asset quality and capital positions to hold firm [SINGAPORE] The strong run in wealth management income…<\/p>\n","protected":false},"author":1,"featured_media":97064,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[2611],"tags":[],"class_list":["post-97063","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buzz-headlines","wpcat-2611-id"],"_links":{"self":[{"href":"https:\/\/sgbuzz.com\/index.php?rest_route=\/wp\/v2\/posts\/97063","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sgbuzz.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sgbuzz.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sgbuzz.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/sgbuzz.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=97063"}],"version-history":[{"count":0,"href":"https:\/\/sgbuzz.com\/index.php?rest_route=\/wp\/v2\/posts\/97063\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/sgbuzz.com\/index.php?rest_route=\/wp\/v2\/media\/97064"}],"wp:attachment":[{"href":"https:\/\/sgbuzz.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=97063"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sgbuzz.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=97063"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sgbuzz.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=97063"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}The Business Times turns 50<\/h3>\n
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Exposure to AI financing\u00a0<\/h2>\n
Interest rates and net margin compression\u00a0<\/h2>\n
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