Singapore's big 3 banks to post lacklustre earnings for 1Q17

Net profit of two banks will decline, whilst that of one bank will remain flat.

Singapore banks are due to report their 1Q17 earnings in the next few weeks, and CIMB expects lacklustre earnings. Possible bright spots include higher fee income (DBS, OCBC) and trading (UOB).

Here are CIMB's predictions:

DBS – Ezra and ECS Chapter 11 filings to weigh on provisions
DBS will report earnings on 2 May. We expect 1Q17 net profit of S$1.1bn (+22% qoq, -8% yoy). Stripping out divestment gains but including the $350m that will be added to GP (as additional provisions are required to boost coverage ratio above its target 100% floor), we estimate core net profit to come in at S$760m (-17% qoq, -35% yoy). We calculate a potential S$225m-500m shortfall in SPs required for Ezra and ECS following their Chapter 11 filings. Possible bright spots include slight NIM upside and better fees.

OCBC – Barclays wealth and lower SPs could drive qoq growth
OCBC will be the last to report earnings on 9 May. We expect its 1Q17 net profit to be S$818m (+4% qoq, -4% yoy). The key positive is likely to be higher wealth management fees with the first full quarter of contributions from Barclays, which added US$13bn in AUM (+20%). On a sequential basis, provisions could have been marginally lower than 4Q16’s 57bp, which ballooned due to shorter contract terms and lower charter rates. Negatives include lower property disposal gains after the sale of three properties in 4Q.

UOB – earlier provision writebacks could result in high base effect
We expect UOB to post a 1Q17 net profit of S$765m (+3% qoq, flat yoy) on 28 Apr. Recall that UOB did GP writebacks in 1Q16 and 4Q16, leading to provisions coming in below the usual 32bp (1Q16: 22bp, 4Q16: 24bp) and creating a high base effect. Fees could be lower after a strong showing for credit card and loan-related fees in 4Q. On the bright side, we think trading income could do better with the market switching to a riskon mode. The absence of associates losses could also provide a bottom line uplift.