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Banks should thank economy for their quarterly showing

THE three local banks predictably posted reasonable results for their core businesses in the third quarter of the year. After all, rising economic activity has fanned consumer sentiment, leading to a greater appetite for loans and financial products like insurance.

The economy's recovery is gathering pace, with growth rates accelerating over two straight quarters - thanks largely to a sustained increase in global electronics demand, the Monetary Authority of Singapore (MAS) said last month in its latest macroeconomic review.

In Asia, the trade upswing since late 2016 has led to a pick-up in manufacturing activity and a rise in incomes, which should filter through to stronger domestic spending.

OCBC Bank chief Samuel Tsien said at the bank's Q3 results briefing: "Singapore, as we all know is a hub economy. So, in the event that the regional countries around Singapore have got more economic activities, Singapore's loan demand will increase."

For United Overseas Bank, Q3 was its strongest quarter ever. Said Wee Ee Cheong, UOB chief executive: "Amid signs of pick-up in the global economy and driven by higher revenues from our diversified banking franchise, we have achieved our strongest quarter yet."

It was also a record high quarter for DBS which saw its total income cross S$3 billion.

Loans grew between 8 and 11 per cent in Q3 for the three banks. Net interest income rose 9 per cent at DBS, 12 per cent at OCBC, and 15 per cent at United Overseas Bank.

Net fee income jumped 12 per cent at DBS led by double digit growth in wealth management and investment banking fees.

It was a similar story at OCBC where fees and commission gained 14 per cent, mainly from wealth management, fund management and trade-related income.

UOB's fee income rose 12 per cent on higher wealth management, fund management and credit card activities.

Regional contribution

What's perhaps more interesting is to look at the breakdown between the Singapore and non-Singapore business, because that seem to show the regional strategy is paying off for OCBC and UOB.

Singapore loans at DBS grew 9 per cent from a year ago, while its non-Singapore loans rose a tad slower 8 per cent.

But UOB and OCBC managed to grow their non-Singapore loans faster. OCBC Singapore loans rose 8 per cent while the rest of the bank's loan portfolio increased 14 per cent. UOB said Singapore loans was up 6 per cent and loans in regional countries was up a strong 10 per cent.

The Singapore banks weren't the only ones to profit from the region's economic expansion. Global banks like HSBC and UBS also saw their bottom lines boosted by Asian operations.

HSBC said its pivot to Asia is generating returns and driving over 70 per cent of group adjusted profit in the first nine months of 2017.

Lending, insurance and asset management posted double digit growth.

Most of HSBC's higher revenues came from Hong Kong, but its Singapore branches did well in growing more customer accounts and global trade business.

UBS, the world's largest wealth management bank, also attributed its good results in Q3 to its Asia-Pacific operations.

"We again saw good results across our business divisions with Asia-Pacific as an important driver of profitable growth. We remain focused on disciplined execution and creating long-term value for our shareholders," said Sergio P Ermotti, UBS chief executive.

For the first nine months of 2017, UBS said its Asia-Pacific profit before tax surged 37 per cent to 1.14 billion Swiss francs (S$1.56 billion); net new money grew 10 per cent or 33 billion francs.

An expanding pie

The question is not whether the local banks can hold their own against global rivals in Singapore. Of course, they can. With a wider domestic network, they could reach out to the mass segment of the market which global banks generally ignored.

But given that Singapore is also Asia's private banking hub, the local banks do not have the field all to themselves. They need to watch out for the likes of UBS, which have the means to draw the billionaire and ultra-high net worth customers to bank with them, leaving Singapore banks with only the lesser millionaire segment of the market.

Still, as long as the pie is expanding - and Asia is tipped to remain the fastest growth region in the world for a while yet - everyone can continue to carve out their own comfortable niches.

Yet, before the local bankers pat themselves for doing well now, they must remember it's the economy they have to thank for.