Singapore banks' core earnings growth predicted to jump 10% in 2015

Banks are impressively geared up for headwinds.

It has been noted that while challenges are ahead of Singapore banks, these will be manageable.

According to a research note from DBS Vickers Securities, while it had anticipated SIBOR to move in tandem with the expected Fed rate hike by end of the year, SIBOR had moved ahead.

DBS Vickers Securities said it believes the impact of the rate hike has been partially priced in but the potential challenges that come with it, especially higher funding cost and a normalisation of the credit cycle, may have been ignored.

Here's more from DBS Vickers Securities:

Banks appear to be well braced up. For 2015, we expect loan growth to average at a high single digit, NIM improvement by 4bps, and 10% growth in non-interest income.

These will be offset by higher expenses (digitisation and integration costs) and normalised credit costs. We forecast a 10% core earnings growth for 2015.

Ending 2014 with a strong note. The Singapore banks will be releasing 4Q/FY14 results during the week of 9 Feb. Expect a moderate set of earnings as 4Q is typically a seasonally slower quarter; non-interest income may be soft.

Watch out for OCBC’s improved traction with WHB as integration is ongoing. UOB may see slightly more provisions in 4Q14 but this should not be significant. We may see some pressure from both UOB’s and OCBC’s Malaysian and Indonesian contributions due to relative currency movements.

Otherwise, loan growth should be at c.2% while NIM should be stable. Inclusive of WHB (in OCBC), 2014 could end with a stellar 14% earnings growth (9% ex-WHB).

All banks will declare a final dividend this quarter and OCBC should be keeping its scrip dividend plan. We would not discount the possibility of UOB declaring a special dividend.

Building blocks for the future. OCBC should be fully focusing on its integration with WHB in 2015. UOB has indicated that this is a year of “moderation”.

Regionalisation remains on both banks’ agendas but there would still be intermittent road bumps. With softness in Indonesia and Malaysia still prevalent, growth would likely be skewed towards Singapore and Greater China.

All eyes will be on 2015 guidance, especially management’s tone on outlook and concerns. Implication on asset quality in the current environment would be under scrutiny.