Singaporean Banks Growth Outlook

By Yantoultra Ngui and Vineet Sachdev

SINGAPORE (Reuters) – Singaporean banks' primary wealth businesses are anticipated to drive near-term growth due to interest rate cuts and an expected revival in the Chinese economy, despite a sequential earnings decline forecasted for the third quarter.

DBS and Oversea-Chinese Banking Corp, Singapore's two largest lenders, are projected to report 3% and 7.4% declines in third-quarter profits, respectively, attributed to subdued loan growth. LSEG estimates indicate this trend is a result of reduced demand for loans.

DBS begins the bank reporting season on Nov. 7, followed by OCBC on Nov. 8. As Southeast Asia's largest banks by assets, they have benefitted from a thriving wealth management industry, achieving record assets and fee income, while higher interest rates have constrained loan growth.

Improved loan demand is anticipated following the U.S. central bank's interest rate cut in September and significant monetary stimulus measures in China. Neo Teng Hwee, CIO for United Overseas Bank's private banking division, states, "With the 50 basis points cut and further cuts expected, this should be positive for loan growth as borrowing costs decline."

Vivienne Chia, global head of investment solutions at the Bank of Singapore, foresees an increase in demand for credit facilities as the interest rate cycle matures, anticipating a double-digit growth in the loan book by 2025 due to lower interest rates.

Singaporean banks have expanded their wealth management services to cater to Asia's growing number of dollar millionaires, particularly in China, as affluent clients increasingly seek to invest offshore.

According to Boston Consulting Group's Global Wealth Report 2024, Asia is projected to contribute nearly 30% of new global financial wealth by 2028, up from 17% last year, driven mainly by wealth growth in China and India.

China's recent economic stimulus is seen as beneficial for Singaporean banks' wealth businesses. Rickie Chan from Bank of Singapore mentions that this creates investment opportunities for wealthy clients. Joseph Poon of DBS Private Bank emphasizes that while immediate increases in client borrowing may not be realized, the sentiment from lower rates is expected to encourage more wealth clients to invest.

Maybank Investment Banking Group's Thilan Wickramasinghe adds that while the effects of rate cuts and China’s stimulus may take time to reflect in bank earnings, it will eventually enhance wealth management appeal. Poon concludes that this positive trend positions the bank to potentially double its wealth fees, which surpassed S$2 billion last year, by 2027.