By Anshuman Daga
SINGAPORE (Reuters) - Singapore banks are likely to report their average net interest margins fell the most quarter-on-quarter in 18 years as interest rates weakened, while profits on the year are seen taking a hit from the impact of the COVID-19 pandemic and weak asset quality.
Uninspiring results could add to investor disenchantment with the lenders, the biggest in Southeast Asia, after the city-state's central bank capped their dividends last week, sparking a sell-off in their shares.
The market's focus when DBS Group (SI:DBSM) and its two smaller rivals report results this week will be on any signs that the June quarter marked the trough for net interest margins, a key measure of profitability, as economies emerge from months of lockdown.
"We expect banks' profit to moderate over the near term due mainly to higher provisioning costs and low interest rates," said Shao Keng Ang, senior credit analyst at Eastspring Investments.
Second-quarter profit at DBS, which has state investor Temasek Holdings (TEM.UL) as its biggest investor, is set to rise nearly 3% to S$1.19 billion (662.41 million pounds) from a quarter ago but slump about 25% on the year, according to the average estimate of five analysts, Refinitiv data shows.
"We forecast a 19 basis points q-o-q average decline for the Singapore banks on the back of a collapse in Singapore short-end rates as well as lower interest rates in the regions that the Singapore banks operate in," Goldman Sachs (NYSE:GS) analysts said in a report, referring to net interest margins, adding that the declines would be the biggest since 2002.
Net interest margins of DBS, OCBC (SI:OCBC) and United Overseas Bank (SI:UOBH) are estimated at between 1.55% to 1.64% for the quarter, according to Refinitiv data.
OCBC's net profit is set to advance 40% from a quarter ago, helped by higher trading income and gains from its insurance unit. On the year, analysts expect profit to fall 20%.
Refinitiv data shows UOB's quarterly profit is estimated to fall on the quarter and from a year earlier.