According to Bloomberg Intelligence analyst Rena Kwok, Singapore banks' credit card operations will “maintain [a] robust asset quality” in the second half of this year, despite prolonged high interest rates.
In the 1Q2024, charge-off rates were below the 10-year mean, with bad debt slightly above average. As such loans comprise only about 1% of an average household's net worth in Singapore, this is an indicator of low debt levels in the nation.
“Credit cards are key for lenders' fee-income growth in 2024, possibly benefiting UOB the most and supporting profits just as loan demand turns sluggish,” writes Kwok.
Meanwhile, the banking sector's credit-card rollover balance to total card billings stood at 32%, below the 10-year average of 38%.
Kwok writes: “With Singapore's resilient job market and unemployment at 2.1%, slightly below pre-Covid-19 levels of 2.2%, the risk of defaults remains tempered.”
As of the first quarter, the banking sector's credit-card charge-off rate was 5%, also below the 10-year average of 5.3%, while bad debt written off was slightly above the 10-year mean at $89 million.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
Overall, the analyst sees credit cards' contribution to total fee income as a bright spot for Singapore's banks, possibly sustaining growth momentum, albeit at a slightly slower pace in 2024 than in 2023.
“This reflects a sustained recovery in travel and resilient consumption spending, aided by a tight job market,” writes Kwok.
She adds: “UOB may see the biggest year-over-year growth in credit cards' contribution to total fee income in 2024 among local peers, helping the lender achieve its double-digit fee-growth target after it consolidates Citigroup's retail business, which is geared more toward cards and unsecured lending.”
See also: PhillipCapital maintains ‘buy’ on Zixin Group Holdings; upgrades TP to 5.6 cents
Banks in Singapore could focus on garnering fee income this year, as loan growth has likely stalled among banks amid prolonged elevated interest rates.
As of 2023, credit cards' contribution to total fee income was 31% for DBS, 42% for UOB, and 20% for OCBC.
As at 3.03 pm, shares in DBS, UOB and OCBC are trading at $37.91, $32.22 and $14.94 respectively.
