Malaysia Lockdown Hits Singapore Lenders
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Singapore banks could face further headwinds after Malaysia announced a nationwide lockdown that will last till the end of March.
High connectivity to Malaysia is expected to weigh in for Singapore banks, most notably UOB and OCBC which source 11 and 14 percent of pre-tax profits from the country, respectively. The two had already flagged earlier that credit costs could rise 25-30 basis points based on assumptions that the outbreak lasts till mid-2020.
At UOB, credit costs could jump 80 basis points if the outbreak extends beyond mid-2020, according to a report citing CFO Lee Wai Fai though he said that it is a «highly unlikely» possibility. At OCBC, CFO Darren Tan said that revenue growth would be «relatively muted» but added that strong capital ratios, funding and liquidity would help the lender stay resilient in this period.
Although DBS said the impact from Malaysia’s lockdown would be limited due to a smaller presence in the market, it is still expected to feel the broader effects of the outbreak. DBS’s chief executive Piyush Gupta recently announced a modest 1-2 percent revenue reduction which its institutional banking head Tan Su Shan called a moving target.
Questions & Answers
Q.Which Singaporean banks are most exposed to the Malaysian market?
Which Singaporean banks are most exposed to the Malaysian market?
UOB and OCBC are highlighted as the most exposed banks. UOB sources 11 percent of its pre-tax profits from Malaysia, while OCBC derives 14 percent from the country. This strong connection makes them particularly vulnerable to the lockdown's impact.
Q.What is the potential impact on credit costs for UOB and OCBC if the outbreak continues?
What is the potential impact on credit costs for UOB and OCBC if the outbreak continues?
Both UOB and OCBC had previously indicated that credit costs could increase by 25-30 basis points if the outbreak lasts until mid-2020. UOB's CFO further noted that credit costs could jump 80 basis points if it extends beyond that.
Q.How does DBS expect to be affected by the Malaysian lockdown?
How does DBS expect to be affected by the Malaysian lockdown?
DBS anticipates a limited direct impact from the lockdown due to its smaller presence in Malaysia. However, it still expects to feel the broader effects of the outbreak, with a modest 1-2 percent revenue reduction projected.
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