3 reasons why Singapore banks will likely be hurt by bearish trading income

Could the bond market sell-off be among them?

According to CIMB, the three banks announced that they will report their 2Q13 earnings on 1st / 2nd August. Events that characterised 2Q include 1) a broad sell-off in bonds and equities (May-June); 2) a dearth of debt issuance and equity IPOs in June; 3) buoyant US$ system loan growth, slowing Singapore mortgage loan growth; 4) lowered GDP growth projections for China, Indonesia and Thailand; and 5) recent MAS concerns on household indebtedness.

CIMB's 2Q net earnings expectations are: DBS at S$835m; OCBC at S$666m; and UOB at S$660m.

Here's more from CIMB:

We reckon that the key feature in 2Q would be poor trading income by all three banks courtesy of: 1) the bond market sell-off and 2) internal trading restrictions imposed after the SIBOR incident, as well as by the market (higher volatility).

As all risk assets have been sold down in late-2Q, capital markets-related fees are also unlikely to prosper either. Trade finance might hold up better though; despite falling global trade finance volumes, Singapore’s non-S$ loan market still seems to be doing quite well i.e. more trade is now being funded by entities sitting in Singapore.

We do not expect banks’ credit costs to rise sharply but highlight rising credit card charge-off rates and MAS’s recent caution.