The title of this blog post is The Power of Singapore Banks Poised for Stronger Q4 Profits Despite Global Economic Uncertainty

The Power of Singapore Banks Poised for Stronger Q4 Profits Despite Global Economic Uncertainty

As Singaporean banks prepare to report their fourth-quarter results, analysts are predicting a robust performance driven by strong net interest income and higher fees income. However, the global economy's recent volatility, sparked by US President Donald Trump's trade tariffs, poses risks to Singapore's economic growth.

Robust Q4 Performance Expected

According to LSEG estimates, Singaporean banks are expected to post higher fourth-quarter net profit year-on-year, driven by robust net interest income and higher fees income. DBS Group, the largest among the three Singapore lenders, is projected to record a 9.8% rise in net profit in the October-December period versus a year earlier. Oversea-Chinese Banking Corp. (OCBC) and United Overseas Bank (UOB) are forecast to post net profit increases of 11.6% and 4.3%, respectively.

Global Economic Uncertainty Looms

While Singaporean banks have benefited from a higher-for-longer interest rate environment and strong inflows of wealth underpinned by the city-state's political stability, Trump's trade tariffs pose risks to the global economy. The threat of duties on other US trading partners could spark an escalating cycle of tit-for-tat tariffs, undermining global economic growth.

Potential Impact on Singapore Banks

In such a scenario, local banks may need to increase provisions for potential bad debts amid rising growth risks, which could come at the expense of earnings. Additionally, heightened global uncertainty could dampen loan demand, as businesses and consumers adopt a more cautious stance on borrowing and spending.

Capital Return Plans in Focus

Beyond the outlook, analysts say that capital return plans, such as potential special dividends and bigger share buyback programs, will be a key focus during the earnings announcements. UOB may surprise the most, followed by DBS, with special dividends, according to Thilan Wickramasinghe, Maybank Investment Banking Group's head of research for Singapore and regional head of financials.

Moderation in Earnings Expected

Looking ahead, some moderation in banks' earnings is expected as Singapore's economy, which grew 4.0% in 2024 for its fastest pace in three years, is forecast to slow to 1.0% to 3.0% in 2025. The country's central bank has warned that shifts in global trade policies could weigh on the domestic manufacturing and trade-related services sectors.

A Higher-for-Longer Interest Rate Scenario

On the flip side, Maybank's Wickramasinghe also raises a potentially beneficial scenario for banks stemming from an inflationary environment created by Trump's tariffs. This would make the Fed cautious on easing too early. A higher-for-longer interest rate scenario is likely to support net interest margins for Singaporean banks.

Conclusion

Singaporean banks are poised for stronger Q4 profits, driven by robust net interest income and higher fees income. However, global economic uncertainty, sparked by Trump's trade tariffs, poses risks to Singapore's economic growth. As the country's central bank has warned, shifts in global trade policies could weigh on domestic manufacturing and trade-related services sectors. Nevertheless, a potentially beneficial scenario for banks emerges from an inflationary environment created by Trump's tariffs, which could support net interest margins.

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Edward Lance Arellano Lorilla

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