Banks' core net profits barely grew 5% in 3Q and worse is expected going forward.
Here's from DBS Vickers:
Hit by NIM pressure, saved by low provisions.
Core net profits grew 5% q-o-q lifted mainly by sustained low provisions and higher non-interest income. Core preprovision profits grew a mere 2% q-o-q, thanks mainly to better than expected non-interest income.
Both UOB and OCBC saw strong y-o-y trends due to weak trading income the previous corresponding year. NIM was under pressure from lower asset yields. UOB’s NIM fell the steepest (-9bps q-o-q vs DBS: -5bps, OCBC: -2bps).
Deposit costs were higher except for OCBC (-5bps).
Slower loan growth while deposits picked up. Loan growth moderated as expected averaging 0.3% q-o-q, 8.7% y-o-y. By sector, the slowdown came from
transportation, followed by general commerce and manufacturing. S$ loan growth remained strong (+3.2% q-o-q; +14.7% y-o-y) while US$ loans shrank (-5.8% qo- q, -1.0% y-o-y). OCBC’s S$ loans grew the slowest among peers as it focused on growth in higher margin countries i.e. Malaysia and Indonesia. Loan-to-deposit ratio eased as deposits largely outpaced loan growth (except for OCBC which saw deposits contract q-o-q).
Asset quality and capital remained strong.
Asset quality was largely stable but UOB saw an uptick from the transportation sector related to an account at an overseas branch. Capital ratios improved as banks issued Tier-2 capital in 3Q12. OCBC added the most with its retained one-off gain from FNN/APB share divestment.
Banks continue to guide for high single loan digit growth going into 2013; OCBC guided midto- high single digit loan growth. It is still too early to assess the impact of the recent property cooling measures. NIM pressure is not expected to ease soon.
We nudged up our FY12 core earnings growth to 16% because of higher-than-expected non-interest income. Our FY13F earnings points to a low single digit growth of 3% from NIM pressure and higher provisions.
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