Singapore banks’ profitability under pressure as 3Q16 results show worsening asset quality: Moody’s – 2 Nov 2016
- December 25, 2015
- Posted by: admin
- Category: Competitive research
- The profitability of Singapore’s Big Three banks is under pressure, as seen by their 3Q16 financial results, said credit ratings agency Moody’s Investors Service.
- “The 3Q16 results for DBS, OCBC and UOB show a further weakening in the banks’ asset quality and profitability, because of the persistent challenges that they face in relation to their oil and gas exposures,” said Eugene Tarzimanov, a Moody’s vice president and senior credit officer.
- Moody’s said it expects that asset quality challenges posed by the troubled oil and gas service companies will persist over the next few quarters, contributing to a further weakening in the banks’ asset quality. Moody’s said the deterioration was in line with its expectations, as reflected in the negative outlook assigned to the banks’ ratings at end-Mar 16.
- Returns on assets continued to decline for OCBC and UOB for the first nine months of 2016, owing to higher credit costs and weaker revenue growth, with UOB pressured by margin compression, said Moody’s.
- The agency said DBS’ profitability showed more resilience relative to the other two banks. For the first nine months of 2016, DBS recorded stronger operating income growth and lower operating expense growth than OCBC and UOB, which it made it better able to withstand the increase in credit costs.
- Moody’s report also noted that despite the headwinds that the banks face, all three show robust loss-absorption buffers. In particular, during 3Q16 the banks recorded higher fully-loaded common equity Tier 1 ratios, driven mainly by retained earnings and slow balance sheet growth.