Recently, a local investment expert Buck Tan advised retail investors to pay close watch to local banks’ earnings results for 3Q17.
Why? Because interest rates are going to rise whether we like it or not, considering that the US stock market has been breaking record high after record high.
Also, most of the current valuations in the stock market should have already priced in the third 2017 US Federal Fund rate hike Yellen talked about since almost a year ago.
However, the outlook for the oil and gas is starting to turn around, albeit not rosy, and property transactions are rising – all factors that the banks depend on.
Here’s a quick look at our local banks’ 3Q17 earnings before the full results are released in two weeks’ time or so.
1. Loans growth
Loans growth might seem like it’s slowing down in the second half of 2017 but Phillip Securities Research (PSR) expects “business loans to continue to be strong” on the back of a strengthening global economy.
As property sales pick up, consumer loans growth should accelerate as well, giving bank loans a good boost in the months to come.
Furthermore, local banks have also been rolling out new housing loan packages to reduce exposure to the Singapore Interbank Offer Rate (SIBOR).
2. Offshore O&G defaults to remain stable
Oil prices are still “hugging” price points near US$50, as PSR points out.
However, local offshore oil and gas players such as Keppel Corporation (SGX: BN4) are starting to see some form of recovery in utilisation rates and rigs albeit still subdued.
At this point, any form of revenue could possibly make or break an offshore player and the number of non-performing loans (NPLs) or defaults matter a lot to local banks.
3. Phillip Capital Research’s estimates
PSR expects net interest income among local banks to expand anywhere from 6.0% to 11% year-on-year and provision expenses to drop.
According to PSR’s view, UOB’s Profit After Tax and Minority Interests (PATMI) should be up around 7.7% year-on-year at $850 million, while DBS’s PATMI should be approximately $1,306 million (up 21.9% year-on-year).
Last but not least, OCBC should be the best performing bank in terms of relative growth, seeing its PATMI expand by 25.3% year-on-year to $1,088 million after adjusting for one-offs.
United Overseas Bank Limited (SGX: U11) – Reduce, $21.61
DBS Group Holdings Limited (SGX: D05) – Buy, $25.70
Oversea-Chinese Banking Corporation Limited (SGX: O39) – Accumulate, $11.95