All eyes on asset quality as Singapore banks unveil results, say analysts

Its resilient performance will be tested.

Topline growth is usually the focal point of when banks release their results for the quarter, but analysts say asset quality may be worth investors’ spotlight this time around.

According to analysts from RHB research, the gripping macroeconomic outlook both domestically and regionally has stoked investor concerns over potential loan book stress.

RHB research says the recent resilience of asset quality will be tested, as banks have not materially changed their guidance on NPLs and credit costs except to say that there would be some deterioration in asset quality in the quarters ahead.

“We believe the rise in impaired loans would be moderate given SG Banks’ stringent credit risk management. Macroeconomic indicators have weakened but not to levels that would precipitate sharp rise in NPLs,” RHB said.

Meanwhile, RHB research says loans are expected to grow slightly in 3Q15, pulled up by the improved demand for businesses.

“Lending to consumers, we believe, remained weak reflecting the sluggish property market while banks’ China loan books would likely dip on slowing trade activities,” RHB said.

RHB also says loan growth would deteriorate further due to weaker-than-expected loan growth so far, and a sharper-than-expected slowdown in China’s GDP growth.

On the other hand, RHB expects NIMs to be more stable in 3Q15 compared to the last quarter.

“Short-term interest rates were relatively steady for the most part of 3Q15 until a renewed appreciation of the USD pushed rates higher in late-September. Hence, potential NIM improvement from the upward repricing of the banks’ Singapore loan books may only be evident in 4Q15,” they said.