The IFRS9 will require banks to set aside for anticipated losses.
Despite healthy capital positions, banks in Singapore are set to face a modest 5bp increase in credit charges by 2020, according to Maybank Kim Eng.
“[T]he known unknown is the impact of IFRS9, which will require pro-cyclical provisioning. We think any major asset-quality distress may result in higher-than-expected credit charges,” analyst Thilan Wickramasinghe said in a report.
The domestic banking sector’s credit charges fell to a 12-year low in 2018 although analysts are expecting headline figures to rise over the coming months amidst worsening macro-economic conditions.
In Q4, OCBC and UOB saw non-performing loan (NPL) formation of 137bp from 53bp in Q3 and 94bp from 75bp and stepped up write-offs of 49bp and 67bp respectively, according to an earlier report from UOB Kay Hian.
OCBC, in particular, is likely to face a more difficult time than its peers as it has to account for its US$122.7m exposure to troubled oil supplier Coastal Oil Singapore. In comparison, DBS and UOB are both owed US$29.9m and US$19.5m.
Despite the muted outlook, Maybank’s Wickramasinghe expects bank NIMs to rise by a modest 5-6bp despite a 76bp increase in funding costs for 2019. Banks loans are also expected to grow 6% amidst strong growth from regional markets.
Do you know more about this story? Contact us anonymously through this link.