Singaporean banks are expected to report increased profits in the fourth quarter, despite potential challenges ahead in the global economy due to U.S. President Trump's trade policies, analysts suggest.
Projections indicate that Singapore's largest banks will show higher net profits for the fourth quarter compared to the previous year, driven by strong net interest income and increased fee earnings, according to LSEG estimates.
The banks in Singapore, like others in the region, have profited from a prolonged period of higher interest rates and substantial inflows of wealth supported by the stability of the city-state.
However, concerns over Trump's trade actions towards China and the possibility of tariffs on other U.S. trade partners could pose risks to Singapore as a significant global trade and financial center. Analysts fear that an escalation in tariffs could lead to a wider global trade conflict.
"In such a scenario, local banks may need to set aside more funds for potential bad debts due to growing risks, which could impact their earnings," said Yeap Jun Rong, market strategist at trading platform IG. He also noted that increased global uncertainty might reduce loan demand as businesses and consumers become more cautious towards borrowing and spending.
DBS Group, the largest of the three Singaporean lenders, is expected to report a 9.8% increase in net profit for the October-December period compared to the previous year, as indicated by LSEG estimates. Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) are also anticipated to show net profit growth of 11.6% and 4.3% respectively for the same quarter, according to the estimates.
DBS is scheduled to disclose its results on February 10, with OCBC and UOB releasing theirs on February 19 and 26 respectively.
Besides financial performance, analysts believe that capital return strategies, including potential special dividends and larger share buyback programs, will be closely watched during the earnings announcements, following the banks' robust showings in previous quarters.
There is a prediction of earnings moderation for banks in the future, as Singapore's economy, which grew at a rapid pace of 4.0% in 2024, is forecasted to slow down to a range of 1.0% to 3.0% in 2025.
The country's central bank has cautioned that shifts in global trade policies might weigh on domestic manufacturing and trade-related services sectors.
On a positive note, Maybank's Wickramasinghe also pointed out a potentially beneficial outcome for banks from an inflationary environment resulting from Trump's tariffs, indicating that this scenario could lead to a longer period of higher interest rates, which would in turn support the net interest margins for Singaporean banks.