What to expect from DBS, OCBC, UOB

SINGAPORE — Shares of Singapore’s high banks jumped within the lead-up to their third-quarter earnings this week as the worldwide financial restoration good points momentum.

OCBC and UOB are scheduled to kick off third-quarter earnings season for Singapore-listed banks on Wednesday, whereas DBS is predicted to report on Friday.

DBS Group Holdings, the most important of the three Singapore-listed banks, hit a recent 52-week excessive on Thursday. The inventory has climbed 25.9% this 12 months as of Friday.

The opposite two banks, Oversea-Chinese Banking Corp and United Overseas Bank, have additionally inched nearer to their 52-week highs. OCBC has gained round 17.3% this 12 months, whereas UOB has risen 18.4%.

All three banks have crushed the benchmark Straits Times Index, which rose 12.5% to this point this 12 months.

Banks have been among the many strongest performing sectors in inventory markets globally this 12 months, stated Geoff Howie, market strategist on the Singapore Trade.

“Rate of interest expectations have been a key driver of worldwide financial institution shares in 2021,” Howie stated in a report in mid-October.

The yield for 10-year U.S. Treasury rose over the past month as markets started pricing in more interest rate hikes than what the Federal Reserve has indicated. It comes as a restoration within the U.S. economic system and disruptions to world provide chains push up inflation.  

Larger rates of interest are typically good for the revenue margins of banks. Rising charges additionally are likely to level to a strengthening economic system, which can imply fewer mortgage defaults.

Singapore’s central financial institution manages monetary policy through setting the exchange rate — as an alternative of rate of interest. Consequently, home rates of interest are influenced by world charges.

The three Singapore banks have reported improved earnings in the last few quarters as the worldwide economic system recovers from the Covid-19 pandemic. Analysts stated the momentum will probably proceed.

This is what analysts predict from the banks’ third-quarter report playing cards, in accordance with estimates compiled by Refinitiv as of Monday:

“As within the earlier quarter, we count on all banks to report strong earnings progress (YoY) on decrease credit score prices,” stated David Lum, an analyst with brokerage Daiwa Capital Markets.

Credit score prices consult with the quantity of reserves that banks put aside in anticipation of mortgage losses.

Like many banks globally, the Singapore lenders made these provisions final 12 months when Covid weighed down financial exercise — however the banks began winding down the provisions this 12 months as the worldwide economic system bounced again.  

Lum stated in an October report that wealth administration might do properly for the Singapore banks, however buying and selling and market-related revenue would possibly come beneath stress within the third quarter.