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Singapore banks see tough time ahead in 2008
Singapore’s DBS and smaller rival OCBC, two of Southeast Asia’s top banks, expect tough outlook in second half of this year as loan growth and the region’s economies slow, said Reuters on Thursday.

DBS posted a surprise 16 percent quarterly earnings jump as loans and trading income grew in April-June, but profit at Oversea-Chinese Banking Corp was dented by the financial market turmoil, said Reuters.

Asian and European banks have generally reported sharply lower earnings in recent weeks due to weak financial markets, but most have fared better than U.S. peers, which are struggling from credit losses tied to a downturn in the housing market.

But analysts warned Asian loan growth will decelerate in the second half of 2008 and next year because of an end to the property boom and slowing Asian economies, which are also struggling with high inflation.

“The risk is slower economic growth and, as a result, higher NPLs (non-performing loans) and higher credit costs,” said Peter Tebbutt, senior director at Fitch Ratings, who covers Asian financial institutions in Hong Kong.

“The Asian economies have been very strong, but that is changing. India, China and Korea particularly look a bit more exposed to the slowdown.”

But he said Asian banks will likely do better than their Western counterparts, such as Citigroup and UBS who are reeling from the credit crisis.

“If you look at the banks in Western countries, whether they are in the U.S. or Europe, particularly the U.S., those economies look like they are going to slow quite significantly or possibly go into a recession.”

Singapore banks have feasted on the city-state’s fast-growing loan market, which surged 25 percent in the second quarter from a year earlier, the highest pace since 1990.

“The Singapore banks have been relatively clean but the economy is slowing down and inflation is rising, so one would expect business to be tough in the coming months,” said Hugh Young, managing director of Aberdeen Asset Management Asia that managed $45 billion in assets at end-March.

Singapore’s economic growth is expected to slow to 4-6 percent this year from 7.7 percent in 2007. Inflation for the year is expected to rise to as much as 7 percent.

DBS’ April-June net profit increased to S$652 million ($472 million) from S$560 million a year ago when profit was hurt by a big impairment on its investment in Thailand’s TMB Bank. It took a small impairment on TMB in the quarter just ended.

Analysts had predicted net profit of S$569 million, according to the average of five forecasts compiled by Reuters.

Trading income rose 14 percent as DBS, which is a strong player in money markets, benefited from volatile foreign exchange and debt trading.

OCBC earned S$425 million ($308 million) in April-June compared with S$532 million a year ago, below the S$500 million predicted by four analysts polled by Reuters.

Second-ranked United Overseas Bank on Tuesday posted a small 2.7 percent rise in quarterly profit due to strong loans growth and investment gains.

“We will continue to be watchful and vigilant in the months ahead as the operating environment becomes increasingly challenging,” said Richard Stanley, who became chief executive of DBS in May after leaving Citigroup in China.

DBS avoided more big writedowns on risky debt after taking a hit in the first quarter. Writedowns on credit-related and other loan losses were S$56 million in the second quarter against S$140 million a year ago.

But the effects of months of market turmoil undermined fee and commission income for both, with OCBC worse hit because of a sharp drop in earnings from its insurance unit.

Both DBS and OCBC saw fast loan growth at 20 percent in the quarter, while UOB’s net loans grew 18.1 percent.

Shares of DBS outperformed rivals in the second quarter, rising 4.8 percent, compared to a 2.7 percent drop in UOB and a 0.9 percent rise in third-ranked OCBC. The benchmark Straits Times Index fell 2 percent in April-June.

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