A weaker quarterly performance is expected from the three local banks in the second quarter business update, amid a continued rise in costs and provisions.
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Meanwhile, earnings for the three banks are expected to peak this year as loan growth tapers off and while the market braces for rate hikes by the US Federal Reserve.
According to Maybank analyst Thilan Wickramasinghe, the bank’s first-quarter NII was 2.7% QoQ, as net interest margins decreased between one and four basis points in the same period, except for DBS bank.
“We expect this trend to be more pronounced in Q2 2023, with DBS likely the least affected, given its large, low-cost liquidity base and potential safe haven flows during the US/Credit Suisse crisis at the end of Q1 FY 2023.”
Costs are also catching up at the same time with depositors shifting into higher-yielding fixed deposits. Low-cost current savings account deposits have decreased over the years.
“The realities of higher borrowing costs, coupled with still-elevated inflation, will register more prominently in 2023,” said S&P Global’s analyst Ivan Tan.
This year, analysts are watching the ability of banks to manage capital. Currently, DBS research maintains its “hold” ratings on both OCBC Banks and UOB on high dividend yields, which support share prices even as earnings increase.
Meanwhile, Citi Research analyst Tan Yong Hong is optimistic about OCBC, which had a 50% payout ratio guidance.
The quarter’s earnings season will be kicked off on Thursday by UOB, followed by DBS on 3 August, and OCBC on 4 August.
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