Event risk puts banks in the spotlight

Are the local banks sufficiently diversified to withstand the unrest in Hong Kong? Will they still be profitable and pay dividends?

SINGAPORE (Nov 18): The local banks — the mainstay in most institutional and retail portfolios because of their profitability and dividends — are warning of a challenging 2020. Macroeconomic variables based on the banks’ expected credit loss (ECL) models are indicating that higher provisions need to be made, impacting net profit.

In a month when bank chiefs were cautiously optimistic, the event risk came from an unexpected source. A video was being circulated of what looked like a DBS Bank branch burning in Hong Kong. A DBS Group Holdings spokeswoman pointed out that it was the China Mobile shop next to a DBS HK branch that was on fire. On Nov 13, Oversea-Chinese Banking Corp (OCBC) announced that some of its branches in Hong Kong were closed because the protests had disrupted traffic and staff could not get to work or return home. On Nov 14, A DBS branch was vandalised in Hong Kong.

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