DBS, OCBC hit by global turmoil; Q1 net profits fall
Two Singapore banks on Wednesday reported falls in first-quarter net profit as trading activities took a hit from global financial turmoil.
DBS Group, Southeast Asia’s biggest bank, said its net profit in the first quarter ended March 31 dipped 2.0 percent to S$603 million (US$446 million) compared with the previous year.
Singapore’s smallest bank, Oversea-Chinese Banking Corp (OCBC), reported a four percent fall in net profit to S$622 million for the first quarter.
DBS said its revenue totalled S$1.56 billion, up 1.0 percent from the same period last year, but it reported a trading loss of S$161 million, compared with a S$171-million net profit the year before, amid a global credit crunch triggered by a crisis in the US housing market.
Income from fees rose 14 percent over the previous year, but was down 7.0 percent from the preceding quarter “due to weaker capital market activities such as wealth management, investment banking and stockbroking,” added DBS, which has operations in 16 Asian markets including Hong Kong.
“The results were not bad,” David Lum, an analyst at Daiwa Institute of Research, said of DBS.
OCBC said its net interest income rose by 26 percent to S$638 million, boosted by loan volumes and improved interest margins.
“However, volatile financial markets resulted in overall non-interest income falling by 26 percent” to S$377 million, OCBC said, citing a decline in life assurance profits and losses in securities and derivatives trading along with lower gains on investment securities.
“The first quarter 2008 loss included a S$16 million mark-to-market loss on credit default swaps related to the bank’s corporate CDO investments,” it said, referring to collateralised debt obligations.
Despite the S$16-million loss, the bank’s corporate CDO investment portfolio of S$344 million continues to perform, it said.
OCBC added that its asset-backed securities CDO portfolio of S$250 million, written down by 85 percent in 2007, did not require further allowances in the first quarter.
CDOs are securities backed by a range of assets including bonds, loans and their derivatives, including corporate loans, high-grade mortgages, sub-prime mortgages, car loans and credit card debt.
World financial markets have been battered since last August by fallout from a crisis in the US sub-prime, or high-risk, loan sector which forced commercial banks to tighten lending criteria leading to a credit crunch which spread to threaten the global economy.
Banks around the world suffered multi-billion-dollar losses linked to sub-prime loans given to US homebuyers with risky credit histories.
DBS Group chairman Koh Boon Hwee said his bank remains financially strong and well-capitalised.
DBS has a relatively small exposure to the sub-prime sector. It had S$259 million in asset-backed CDOs, and said it has set aside provisions for about 90 percent of that amount.
“We don’t expect any further provision charges for CDOs to be significant in the coming quarters,” said chief financial officer Jeannette Wong, adding total CDO exposure fell to S$1.44 billion from S$1.5 billion in the fourth quarter.
Both the DBS and OCBC profit figures beat analysts’ forecasts but UOB came in below market expectations.
On Tuesday United Overseas Bank Group (UOB) said its net profit in the first quarter rose an annual 2.1 percent to S$529 million, boosted by loan growth.
UOB said its investment in CDOs declined further to S$268 million, including S$82 million in asset-backed securities, while impairment charges increased by 1.8 percent to S$89 million, largely attributed to provision for CDOs.
The bank said it has fully provided for its asset-backed securities CDOs.
Lum said the banks face a scarcity of growth sources given a risk-averse investment environment. – AFP/ac
Source : Channel NewsAsia – 7 May 2008
PM Lee says Singapore will continue to develop financial sector
Prime Minister Lee Hsien Loong said Singapore will continue to develop the financial sector as more activities are being moved to the city-state.
Mr Lee, who was speaking to 120 bankers at the hour-long Thomson Reuters Dialogue on Tuesday, added that more would be done to ease capacity constraints, such as the crunch in office space and accommodation.
The financial sector in Singapore grew by some 17.5 percent last year. But the prime minister said Singapore needs to level up to cope with this upsurge in activities.
He said: “We are running up against constraints because we don’t have enough office space, we don’t have enough accommodation and rentals have gone up.
“We don’t have enough schools for the expatriates’ children. (But) we are addressing this – we are helping the United World College to build a new school in Tampines, and they told me that places are already fully taken.”
Mr Lee added that rentals are likely to come down, with more offices and apartments coming on stream in the next few years.
On the whole, he is optimistic that Singapore will be able to weather the economic slowdown in the US.
Responding to a question, Mr Lee said while the value of export in the electronics sector is down, the volume has increased and there are other sectors that are doing well within the manufacturing sector, such as the pharmaceutical and petrochemical businesses.
On the issue of inflation, the prime minister said food prices will continue to rise for some time as consumption continues to increase.
Another reason for the price hike is an under-investment in the agricultural sector previously. This shortage in food supply has resulted in hoarding and some countries have limited the export of rice.
Mr Lee said he hopes ASEAN member countries can coordinate efforts and not work against one another so as to ensure that rice gets to the people.
The topic of foreign talent was also raised at the dialogue session. Mr Lee said that like London and New York, Singapore needs to tap on a range of expertise from all over the world.
“We are not only a city, we are a country. We have to have a hard core of Singaporeans so that the character of the place remains Singaporean, while being cosmopolitan,” he said.
As for leadership renewal, Mr Lee said Singapore needs to keep it contestable while focusing on building a good team that can meet future challenges and find new ways of engaging the population.
Source : Channel NewsAsia – 6 May 2008
MAS stresses it will not regulate Islamic banking sector in S’pore
The central bank has reiterated its stance that it will not regulate the Islamic banking market here in Singapore.
At a conference on Islamic Finance on Tuesday, the Monetary Authority of Singapore (MAS) instead argued that Shariah-compliance should be regulated internally as part of a bank’s good practice in governance and control.
The Islamic banking market is estimated to be worth as much as US$800 billion worldwide and it is growing by up to 30 per cent in some markets.
While there has been a push for Singapore to have a greater pie of the market, the MAS said regulation may be counter-productive in small markets.
Chia Der Jiun, Executive Director, Prudential Policy, MAS, said: “Much of the business is going to be wholesale, off-shore, international counter parties, and these counter parties may reside in the Gulf, in Southeast Asia, and they have Shariah interpretations and standards that may be somewhat unique in their jurisdictions.”
The response came amid talk that regulation may be needed to help boost investor confidence. Some industry players said this will help attract more Islamic private wealth from overseas and further increase Singapore’s status as a wealth management hub.
Aimi Zulhazmi, Principal Officer, BIMB Trust, said: “People are looking at Singapore as a leading player in the financial market. A lot of wealth especially on the private wealth management resides in Singapore.”
While the MAS said there is no need for a separate Islamic banking regulatory framework, it noted that more disclosures are needed as they would help investors make better investment choices. – CNA/vm
Source : Channel NewsAsia -22 Apr 2008
OCBC Bank does not expect further CDO impairments
OCBC Bank said it does not expect further impairments on its exposure to collaterised debt obligations (CDOs).
Chief Executive David Connor made that comment at the bank’s annual general meeting on Thursday.
So far, 85 percent of the bank’s CDOs have been marked-to-market, with provisions made for. OCBC said it does not expect any impairment losses from the remaining 15 percent.
Concerns were raised over whether the lender might suffer a greater impact from the fallout from the US housing credit crisis in the coming months. But OCBC said the majority of its asset-backed CDOs are already yielding returns, and it expects half of them to mature in the next two years.
OCBC’s aggressive expansion in Indonesia last year also came under the spotlight. Shareholders raised concerns over what they called “fairly substantial allowances” made by OCBC in 2007, and asked if the aggressive expansion would continue.
“What we were told by the chief executive is that they’ll probably slow down a little bit in 2008, and consolidate. (This) is good news because Indonesia is a good market but they should perhaps step back a little,” said Philip Smith, an OCBC Bank shareholder.
OCBC said profits in its investment in Indonesia’s Bank NISP have increased dramatically. It expects each of its branches in Indonesia to break-even within two years.
OCBC also announced the retirement of two of its directors, Michael Wong and Tan Sri Dato Nasruddin, at the AGM. – CNA /ls
Source : Channel NewsAsia -17 Apr 2008
Industry players expect more homeowners to refinance their mortgage loans
Industry watchers expect more home owners to consider refinancing their mortgage loans as interest rates look set to dip further.
In fact, mortgage and financial planning firm SingCapital has seen a three-fold jump in enquiries in the last two months.
Property agents are also getting a crash course in mortgage planning, including answering questions about refinancing of home loans.
This occurs when homeowners seek out more favourable loan packages from other lenders.
Industry players said it’s the right time to refinance, which could save a huge amount in interest payments.
Alfred Chia, CEO of SingCapital, said: “Just from last year itself, interest rate could be as high as four per cent, compared to current rates where the average is about 2.5 per cent per annum. There’s a big difference over there. Based on what we can see, interest rates will continue to fall, till the next six months.”
Market watchers expect interest rates to fall a further half a percentage point in the Singapore Interbank Offered Rate or SIBOR by September.
It’s partly linked to the recent cuts in US interest rates to contain the fallout from the sub-prime crisis.
SingCapital said it receives about 60 enquiries on refinancing each month.
Among these, seven in ten are private property owners.
Banks have also been enticing more customers with Maybank, Standard Chartered Bank and DBS among the most aggressive in the home loans market.
Mr Chia added: “There’re some packages currently that offer 2.88 fixed for three years with a cash back of one percent. If it’s a refinancing case, the one percent cash back would be given to the owners one month after the loans is disbursed.
“So if you add this interest rate, minus the cash rebates, the cumulative rate is only seven over percent, on average every year it’s about 2.5 or 2.6 per cent interest.
“And it gives you the stability to plan for other finances, knowing that your monthly instalment for the house is going to be fixed at that price for the next three years.
Even though this may look like a good time to consider refinancing mortgage loans, industry players said home owners should assess the different packages based on their individual needs.
They should also be aware of the potential risks arising from the US sub-prime crisis and inflation.
Source : Channel NewsAsia – 24 Mar 2008
Industry watchers expect SIBOR to dip 0.5 percentage point in 6 months
The Singapore Interbank Offered Rate or SIBOR is expected to dip a further 0.5 percentage point over the next six months.
Industry watchers said this will present an opportunity for homeowners and companies to refinance loans on their properties.
The US Federal Reserve recently cut its benchmark interest rate to 2.25 per cent in a bid to prop up the American economy.
And this has indirectly put a drag on SIBOR – the rate at which Singapore banks lend to each other.
Financial planning firm SingCapital expects SIBOR to slide by some 0.5 percentage point in the short term, from the current 1.425 per cent.
Alfred Chia, CEO of SingCapital, said: “In the next 6 months we expect SIBOR rates to follow the Federal Reserve’s although not at the same quantum. The current interest rates fall is to combat the sub-prime issues in the US.
“So when Federal Reserve finds that they have handled that situation, the next issue they will be looking at is to combat inflation which will mean interest rates may rise back again.”
So financial planners said property owners could consider refinancing mortgage loans now, saving them money in interest payments.
And there appears to be no lack of choices for consumers when it comes to selecting loan packages.
Mr Chia added: “I would say DBS has always stressed on transparency to customers but lately we are seeing foreign banks coming in very aggressively.
“For example, Maybank, they offer first year at as low as 1.68, and for example Standard Chartered where they are promoting their SOR (swap offer rate) package.
“With so many activities happening for Singapore, F1, IR, Youth Olympics, definitely the demand for housing is growing, so in the long-term we are very confident about loans growth for the banks.”
Even though this may look like a good time to consider refinancing mortgage loans, industry players said homeowners should assess the different packages based on their individual needs.
They should also be aware of the potential risks arising from the US sub-prime crisis and inflation. – CNA/vm
Source : Channel NewsAsia – 24 Mar 2008
How the Dollar Affects Interest Rates and Home Loans
The dollar has fallen to an all time low, around the world. The dollar has struggled against the Euro for some time now, but is now at a record low against this currency. In addition, the economic troubles the US is facing have dropped the value of the dollar against many currencies which it is traditionally stronger than. What does the falling value of the American dollar mean to those looking for loans and mortgages?
For one thing, the falling value of the dollar will drive up interest rates on many loans. This has already been seen on many home mortgages for consumers with less than stellar credit. Their loan payments have ballooned upwards as the housing market has fallen to almost rock bottom. Even the economic incentive plan President Bush is proposing this summer may be too little, too late. The economic damage has been done; now consumers must simply wait and see if a recession is in offing.
The market for loans is as weak as the value of the dollar, as a result. Unless you are a consumer with perfect credit or substantial cash reserves for a down payment, many lenders will not extend a line of credit. The impact of this has led to the federal government instituting new regulations on lenders, particularly those in the housing market.
These new regulations force lenders to base their decision on the actual income of the loan applicant, rather than their credit rating. In a sense, this is actually a good thing for both sides. Another benefit, though indirect and much maligned, is the fact that the looming economic crisis in America may force consumers to rethink their spending habits. Many American consumers treat credit as though it were hard currency, banking on future earnings, rather than saving anything for themselves.
The falling value of the dollar is further exacerbating the housing market crunch, by driving housing prices back up, despite a weak market. This means that there is a very small window in which consumers can invest in property below market value, before those values are increased by inflation.
Survey shows consumers looking for more flexibility in loans
People’s attitudes towards loans are changing, according to a survey conducted by consumer finance firm, GE Money, last month.
With the Singapore economy expected to moderate this year, two thirds of 365 consumers polled said they were more cautious about taking up loans.
A total of 95 percent of respondents said flexibility was very important when applying for a loan.
Almost half said they wanted flexible options to deal with unexpected events any time through their loan period.
Alok Kumar, chief marketing officer, GE Money Singapore, said: “The needs are changing; the price or interest rates are not the only factors that excite the consumers.
“Consumers are conscious of the fact that their lifestyles are changing and they want their product to work harder through flexibility, options and choices.”
Source : Channel NewsAsia – 11 Mar 2008
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