Singapore (Commonwealth Union)_ The profitability of the three neighborhood banks will be challenged in 2019 due to a projected decline in asset quality, predicts Moody’s Investors Service. Due to growing interest rates, DBS (D05 + 0.83%), OCBC (O39 + 0.16%), and UOB (U11 + 0.54%) all reported record earnings for the third quarter of 2022. Due to additional rate hikes, Moody’s analysts anticipate that profitability will continue to rise in line with this pattern over the course of the next two to three quarters.
However, the credit rating agency warned in its assessment as the economy continues to deteriorate and default rates rise, the asset quality of the banks would also decline. Small- and medium-sized business loans, unsecured consumer loans, and loans with exposure to Chinese real estate developers were singled out as being particularly risky. In anticipation of this, the banks would increase loan loss provisions, according to Moody’s, which noted that current levels are low at around 0.2% of total loans in all three banks as of Q3 2022.
On loan growth and interim dividend payouts, the banks’ capital ratios slightly decreased, but their common equity tier 1 (CET-1) ratios held steady at “good” levels, according to Moody’s. The terms “CET-1” and “paid-up ordinary shares”, “share premium”, “accumulated other comprehensive income”, “other disclosed reserves” and “certain other assets” are used interchangeably. Following the acquisition of Citi assets, Moody’s anticipates that the CET-1 ratios of DBS and UOB will slightly decline in the upcoming quarters. The agency predicts that all three banks’ funding and liquidity will nevertheless be “robust” in 2023. Even though depositors tended to favor higher-rate term deposits. It was further stated that current and savings deposit ratios in banks’ total deposits remained high.
