By Anshuman Daga
SINGAPORE (Reuters) -Singapore lenders Oversea-Chinese Banking Corp and United Overseas Bank (OTC:UOVEY) beat profit estimates, driven by recovery in core markets, but their sequential performance slowed sharply, underscoring challenges to maintain growth.
Prospects in Singapore's banking sector have improved as a rebounding economy has boosted demand for mortgages and loans, while booming markets bolstered the wealth management business.
At the same time, OCBC and UOB joined global peers such as HSBC and Standard Chartered (OTC:SCBFF) in signalling strong asset quality after last year's huge provisions in the face of the coronavirus pandemic.
"The banks' ample reserves and improved earnings provide them with very good buffers," said Eugene Tarzimanov, senior credit officer at Moody's (NYSE:MCO) Investors Service, who expected a moderate increase in the two banks' non-performing loans over the rest of 2021 and 2022, particularly in foreign operations.
OCBC, Singapore's second-biggest bank, reported net profit of S$1.16 billion ($858.75 million) in April-June versus S$730 million a year earlier. That compared with the S$1.12 billion average of four analyst estimates, Refinitiv data showed. But profit slumped 23% from the first quarter.
As the virulent Delta variant carves a deadly path through Southeast Asia, turning it into a global epicentre of the virus, analysts are concerned that banks' bad loans will increase.
Weaker economic growth in Malaysia and Indonesia prompted OCBC to step up some provisions for potential loan losses in the second quarter, given a resurgence of cases, Chief Executive Helen Wong, who took charge in April, told an online news conference.
The bank's total allowances for loan losses fell 69% in the second quarter from a year earlier.
Quarterly net profit at smaller peer, United Overseas Bank, came in at S$1 billion, beating the S$948 million average of three analyst estimates, according to Refinitiv data. Profit rose 43% from a year earlier as impairment charges more than halved, but profit was flat from the first quarter.
Shares of both banks rose on Wednesday in a strong broader market.
OCBC and UOB increased dividend payouts. Last week, Singapore's central bank removed caps on bank dividends, citing an improving global economic outlook.
Southeast Asia's biggest bank, DBS Group (OTC:DBSDY) Holdings, reports results on Thursday.
($1=1.3508 Singapore dollars)