Chart of the Day: Here’s why Singapore banks’ non-interest income is bound to cool down

Their outperformance won’t extend to 2016, analysts say.

This year was one of shattering expectations for Singapore’s banks, with hefty trading gains seen near the end of 2015. However, analysts say they might not enjoy the same amount of success next year.

According to analysts from RHB Research, non-interest income for the city-state’s banks would be volatile next year, rendering a repeat unlikely.

“Fee income is also expected to be tempered by lower income from loan-related activities and investment banking fees,” said RHB Research.

Meanwhile, though RHB Research predicts that loan demand would also be soft for Singapore’s banks in 2016 due to Singapore’s low GDP growth, net interest margins (NIMs) should be stable.

“We forecast for moderate loan growth (constant currency terms) of 4.5% in 2016 vs 3.4% in 2015 and 14% in 2014,” RHB said.

“Although we see NIM pressures from China and ASEAN, this would be cushioned by a measured rise in Singapore’s short-term rates, along with the slow and gradual normalisation of US rates from December,” RHB added.

Additionally, asset quality is also expected to hold the fort for Singapore’s banks next year, as the city-state’s asset quality is the best among its ASEAN peers, evident through its muted non-performing loans.

Nevertheless, their exposure to the commodities sector might reverse this strength.

“However, with proactive actions to assist distressed borrowers, we do not expect massive blowups in NPLs. SG Banks are confident provisions would not be significantly higher and we have factored in credit cost of 22bps for 2016 (2015: 23bps), with loan loss coverage stable at 145%,” RHB Research said.