The Singapore banking industry has persevered through challenges in 2019 such as global growth coming under pressure due to geopolitical and trade tensions, but the COVID-19 outbreak will be a greater test to the country’s financial sector stability.
March 16, 2020 | Janine Marie Crisanto
- DBS, OCBC and UOB ended 2019 with solid balance sheets and financial positions but their capacity to withstand the business challenges presented by COVID-19 will be tested in 2020
- The profitability of the three Singapore banks are at risk as the loan books are projected to contract and deteriorate
- The banks have set up relief solutions to support clients’ credit health
The country’s biggest banks – namely DBS, OCBC and UOB – reported stable results for 2019. However, the building momentum in financial performance is expected to take a slight break this year as the sector is being threatened by the COVID-19 pandemic which began at the end of 2019 and have magnified globally during the first quarter of 2020. As of now, the outbreak has not shown signs of deceleration, thus putting Singaporean banks in a vulnerable state if it continues until the second half of the year.
Assets increased by around 4% to 5% year on year, with evident expansion and diversification of their loan books, mainly driven by borrowings in building and construction, housing and general commerce. Deposits also grew at a range of 3% to 6%, with UOB capturing the largest growth among the players. While the financial position of the three banks remained healthy in 2019 as evident in the sustained growth in their balance sheets, the widening COVID-19 crisis will most likely cause contraction in the loan books of banks.
Profitability will also be put under pressure. In 2019, the total income of the three banks have all shown double-digit growths, while profit before tax has shown a modest uptake with DBS outpacing the two banks. The banks were able to deliver earnings as supported by an upward trend in lending activities mostly in the corporate sectors as well as increasing fee incomes from wealth management and investment banking activities. These are reflected in the increase in their return on assets,...
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