Are Singapore banks doomed for another full-blown crisis soon?

Don’t count on a results rebound.

Singapore’s banks are trapped on metaphorical quicksand, as analysts are univocal on the fact that they will continue to disappoint in almost all metrics. This begs the question: Are banks headed for a repeat of the Global Financial Crisis?

According to analysts from DBS, banks should brace for a flattish and uninspiring quarter, as earnings are expected to be extremely soft qoq.

On top of the list, DBS says sluggish loan growth is expected to temper banks’ loan-to-deposit ratio, especially for UOB and OCBC.

“We understand that UOB continues to keep its US$ funding high (note that its US$ loan-to-deposit ratio is low at 55% vs OCBC’s 72% and DBS’ 106% in 2Q15). Initiatives to build up its US$ deposit base has been imminent over the past few quarters especially since the establishment of its Financial Institutions Group (FIG) unit to garner US$ operating accounts,” DBS said.

“For OCBC, slower loan growth coupled with excess liquidity which will likely be deployed into lower yielding money market assets (as seen in 1Q15) could limit NIM upside,” they added.

Meanwhile, DBS says banks are also headed for a mixed quarter for non-interest income, with UOB likely to recover from the weak trading income recorded in 2Q15.

“Loan-related fees are likely to pick up while wealth management and credit cards fees should remain largely stable,” DBS said.

However, OCBC’s insurance income may stay sluggish due to unrealised mark mark-to-market losses, while wealth management income could stay slow.

On the bright side, the only metric pointing upwards this year is the NIM, caused by Fed rate hikes.

“Whether it happens in December this year or delayed till next year, investors seem to be pricing in the “it’s a matter of time” attitude. The contention is more on next year’s outlook. There would be downside risk to NIM if Fed fund rates are not raised and funding cost pressures regionally continue to escalate,” DBS said.

Nevertheless, DBS says a crisis repeat is unlikely.

“We believe the banks are unlikely to revisit valuations seen during the GFC. Nevertheless, we have stress-tested valuations,” DBS explained.

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