Singapore's banks are expected to reach their loan growth targets by the end of 2021 on the back of a recovering economy.
The island nation's major lenders, DBS Group Holdings Ltd., Oversea-Chinese Banking Corporation Ltd. and United Overseas Bank Ltd., posted year-over-year loan growth for the nine months ended Sept. 30 amid a rise in lending activity from both retail and corporate borrowers in Singapore and Greater China.
For the nine-month period, both DBS Group's and United Overseas Bank's loan growth came to 9%. Meanwhile, OCBC posted a 6% rise in customer loans during the period.
"All banks are on track to reach their guided targets for 2021," said Andrea Choong, a Singapore-based equity research analyst at CGS-CIMB Securities, referring to the banks' aims to achieve mid-to-high single-digit targets. "We expect continued momentum to sustain into next quarter."
DBS Group, Southeast Asia's biggest banks by assets, said that it expects loan growth of 9% to 10% in 2021 due to 2020's low base. Pre-pandemic, typical loan growth was 4% to 5%, CEO Piyush Gupta said on a Nov. 5 earnings call.
"Our loan growth this year was quite diversified between corporate bank and consumer wealth business," Gupta said. Mortgage was a very strong driver for consumer wealth and corporate books grew close to S$5 billion this quarter, the CEO added. Meanwhile, other consumer loans grew S$2 billion due to wealth management.
DBS Group expects business momentum and recovery to continue at a steady pace until the end of 2021 and through 2022, with the lender expecting 6% to 7% loan growth and double-digit fee income growth next year. Gupta said the company expects to see more loan growth in its India business.
Recovering net profits
For the third quarter, DBS Group posted a 31% year-over-year increase in net profit to S$1.70 billion from S$1.30 billion. The bank wrote back credit allowances of S$70 million, helping boost profit, compared with credit charges of S$554 million in the third quarter of 2020.
"The banks' allowances have fallen across the board but still remain above the [Monetary Authority of Singapore] requirement of 1%. We can see that the banks are starting to reverse the substantial provisions made in 2020 and it would depend on how the economy improves," said Glenn Thum, a Singapore-based research analyst at Phillip Securities Research.
Rival United Overseas Bank posted a 57% year-over-year rise in third-quarter net profit to S$1.05 billion from S$668 million, while OCBC logged a 19% year-over-year increase in net profit to S$1.22 billion from S$1.03 billion. Loan growth has also been a primary driver for their improved results.
Singapore is starting to reopen its borders with 84%, some 5.45 million, of its population fully vaccinated against COVID-19, Bloomberg News reported Nov. 1. The city-state's GDP grew 6.5% in the third quarter from the prior-year period. In October, the Monetary Authority of Singapore said that GDP growth is expected to come in at 6% to 7% in 2021 and register a slower but still-above trend pace in 2022.
"We're ready to put the pandemic behind us and remain well placed to support customers and deliver shareholder return," said Chng Sok Hui, CFO of DBS Group.
As of Nov. 4, US$1 was equivalent to S$1.35.
