Last week the three local banks reported their full year financial results and here we summarized the key financial ratios with a closer look at their mortgage books.

Across the board the three lenders have reported a drop in full year net profit largely a result of higher provisions for NPL (non-performing loans) in oil & gas sector.  The NPL ratio has also gone up quite significantly for DBS (0.9% to 1.4%) and OCBC (0.9% to 1.3%).  However if one takes a closer look at the growth in top line revenue, interest income for all three lenders have remained strong with DBS even improving it by 2.9%.  Although DBS reported a big drop in NIM (net interest margin) for the final quarter year-on-year from 1.84 (2015Q4) to 1.71 (2016Q4), on an annual basis it was actually the only bank that showed an increase in NIM from 1.77 to 1.80, whereas OCBC registered flat NIM growth and UOB’s NIM dropped (from 1.77 to 1.71).

Another noteworthy mention is how DBS has also managed to grow its non-interest income by a stellar 13% from $3.7b to $4.18b, a testament to the success of its Wealth business for both private banking and DBS Treasures, as opposed to a drop in non-interest income for its two local rivals.

It is hard to analyze the performance of the mortgage business in Singapore as the three lenders only provide aggregated figures across all currencies and countries where they operate.  We have to use some assumptions and do some smart-guessing.  Based on DBS CEO’s comment of a commanding 29% market share (which we assumed as at Dec 2016), and the total mortgage market of $192,099m according to MAS statistics (this includes bridging loan which we assumed to be an insignificant portion), DBS home loans book in Singapore is around $55,708m.  This works out to be 86.4% of their total mortgage book of $64,465m as at end 2016 as reflected in their financials, the remaining 13.6% we assumed will be mortgage books from DBS Hong Kong and other overseas operations.

It will be hard to ascertain whether OCBC and UOB does more or less mortgage business outside of Singapore operations than DBS.  For this exercise, we can only assume the same 86% share of their aggregated mortgage books come from Singapore operations and hence the respective S$ housing loan portfolio for the three lenders will be respectively DBS home loans at $55,708m, OCBC home loans at $51,728m and UOB home loans at $52,847m.  Hence collectively the three local lenders captured $160,284m or some 83% of market share in Singapore.  Incidentally the pie has also grown 4% in 2016 from $184,680m as at end 2015 to $192,099m, with the many completions of private and HDB units in the year.  DBS registered the highest loan book growth rate at 10% and all three banks outgrew the industry average increase of 4% which likely means they have captured market share from foreign banks in the mortgage business.  This is not surprising with the success of DMR home loans in Singapore in the past two years and we see this trend continuing unless foreign banks respond more strategically in order to arrest their dwindling market share.

With the introduction of DMR home loans, we also need to monitor the deposit books of the three lenders which has shown substantial increase in 2016.  Here DBS is the only bank that provides breakdown of their Sing dollar deposits base whereas the other two lenders provide aggregated figures across all currencies.  DBS has grown its S$ deposits by 8% from $140.8b a year ago to $152.1b.  Once again we see the anomaly here for DBS with its huge POSB franchise where CASA (current account & savings account) form 89% of its total S$ deposit base, as opposed to 51% for OCBC and 44% for UOB (we are comparing against all-currencies for the latter two).  On DBS’s chosen DMR loan peg, FHR18, if we assume only 20% of their fixed deposit base ($15.8b) come from small depositors of below $10,000 which works out to $3.16b, then we can conclude that FHR18 deposits form only 2% of their total S$ deposits base.

With all three lenders under pressure from NPLs, besides improving bottomline through digitalizing services and driving productivity and a renewed focus on growing Wealth business the star performer in the industry, there is definitely impetus to grow NIM.  We have long maintained our view that the local banks would likely be the first to move on increasing their respective DMRs in order to benefit from a rise in interest rates.  We see at least one move on DMR before end of the year, more likely to come in the 2^nd half when SIBOR picks up further.  Speak to us today to make your pre-emptive move before that happens.

At MortgageWise.sg, we seek to provide thought leadership in the area of mortgage planning in Singapore, taking deep dive into developments and news on mortgages & helping clients track interest rate movements.  We do not just go for one-time business with clients but rather choose to build long trusting relationships by giving truly independent advice to the extent of losing the deal.  We strive to become the first-choice mortgage partner for homeowners and the creditable distributor of home loan products for banks and financial institutions in Singapore.