According to a report by S&P Global Market Intelligence and based on a compilation of analysts’ expectations, the local banks are unlikely to repeat FY2023’s performance.
In FY2023, excluding one-off costs, DBS Group Holdings reported a 26% y-o-y rise its FY2023 net profit to a record-high $10.29 billion; Oversea-Chinese Banking Corp reported net profit of $7.02 billion, up 27% y-o-y; and United Overseas Bank U11 ’s net profit rose 25% y-o-y to $6.06 billion.
This year, the average earnings estimate in FY2024 is for net profit at DBS to ease to $9.94 billion; UOB’s net profit is also likely to fall to $5.86 billion. OCBC’s net profit could inch higher to $7.12 billion.
Banks could face earnings pressure after benefiting from higher net interest margins (NIMs), as the US Federal Reserve and other central banks are expected to start cutting rates this year. Funding rates could remain at their current level as loan yields decline.
As it is, the banks themselves guided for modest easing of NIMs. OCBC expects its NIM in the range of 2.2% to 2.25% for 2024; UOB expects NIM to continue to hold around 2%; and DBS' NIM is likely to be under the 2.13% levels, the banks' executives said during recent earnings conference calls.
Asset quality has remained benign. Analysts have expressed concern over commercial real estate (CRE), in particular the challenges around CRE valuation and refinancing in Hong Kong and mainland China. The local banks have a limited exposure to CRE in Hong Kong and China.
