Malaysia Lockdown Hits Singapore Lenders

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.