As 2008 draws to a close, banks here are bracing themselves for what may be the toughest year for the Singapore banking industry since at least the Asian financial crisis.
Having suffered heavy losses from soured investments and volatile financial markets this year, banks expect 2009 to bring even more bad tidings as the damage spreads through the economy: job losses, bad debts, bankruptcies and falling demand for loans.
While those who responded to BT's questions sounded cautiously upbeat, all banks are buckling up for a rough ride ahead.
And with good reason: Few people in the industry claim to know just how bad things could get.
'The global financial crisis has carried us into uncharted territory over the past few months and is unprecedented in its scale and impact,' said David Conner, chief executive of OCBC Bank. 'The next few quarters are expected to be challenging for individuals and businesses around the world.'
Banks insist that they are still lending to new customers, though standards have been tightened significantly. 'We have become much more cautious and conservative in approving new loans,' said Goh Chong Theng, Rabobank International's Singapore general manager.
'The entire property market in Singapore and the region is feeling the impact of low credit appetites and slow demand. This will hurt banking profits in 2009 for all banks operating in the region,' he said.
Many banks, including DBS Group, Citigroup, Credit Suisse and HSBC have recently announced job cuts; even more have been quietly shedding staff here.
Still, the biggest foreign banks said that they would continue to invest in this part of the world. That's no coincidence: for banks with an international footprint, strong profits in Asia have limited the damage to their overall earnings from massive losses in the US and Europe.
At Citigroup, which has suffered one of its most tumultuous years ever, long-term plans for growth here remain intact, said Adam Rahman, Citi's Singapore corporate affairs head. 'Our business in Singapore remains a regional centre for management and operations for Citi globally. Our new office premises in Changi Business Park is on track, with the first building expected to be completed in 2009 and the second in 2010.'
'We are also continuing to extend our distribution footprint across the island with new retail branches.'
Swiss banks UBS and Credit Suisse, which announced worldwide job cuts earlier this year, both said that they would continue to hire selectively here.
'The short-term economic environment is very challenging across the region, but the medium- to long-term economic outlook for Asia-Pacific remains attractive and we will continue to invest selectively in our businesses,' said Gerald Chan, UBS Singapore country head and chief executive. 'Asia-Pacific, and specifically Singapore, continues to be a key growth market for UBS.'
Lito Camacho, Asia-Pacific vice-chairman and Singapore country head for Credit Suisse, said that the bank's expansion here would go on. 'Singapore continues to be a very important banking centre for Credit Suisse and we will continue to make investments here.'
Amid the belt-tightening and extra precautions throughout the industry, some banks see a chance to win a bigger share of the highly competitive banking market here.
'While exercising caution, we are cognisant that there are still business opportunities available in such volatile times,' said Pollie Sim, country head for Maybank Singapore.
Nomura's presence here will actually be strengthened after the Japanese financial group bought the Asian operations of bankrupt US investment bank Lehman Brothers in September, said Nomura Singapore president Seiichiro Miyaoka. 'We would like to beef up our client-facing business as a result of the integration of ex-Lehman and Nomura.'
But a major worry is that Asia's resilience may not last into next year.
Jimmy Koh, head of treasury research at United Overseas Bank (UOB), warned that the full impact of the financial crisis on Asian economies has yet to be felt. 'We have not even walked into the storm,' he said. 'We'll only have a sense of how bad the situation is as we enter 2009.'
Singapore's economy could shrink by up to 2.5 per cent next year, said Standard Chartered Bank economist Alvin Liew.
Significantly, Stanchart's analysts also expect overall bank lending in Singapore to contract by 2 per cent next year as banks tighten credit standards and businesses and people cut back on borrowing.
Kenneth Ng, a CIMB analyst who covers the Singapore banks, told BT that he expects a difficult year ahead for DBS, OCBC and UOB. In 2009, 'we're expecting banks' earnings to come down 30 per cent, driven by higher loan-loss provisions', he said.
'We're expecting progressively more bad news as the distress from the financial sector spills into the real economy.'
Even banks that have so far been spared the worst of the financial crisis are preparing for difficult times ahead. 'We have implemented a hiring freeze in preparation for a tough 2009,' said Rabobank's Mr Goh. 'We are also watching our capital allocations and costs religiously.'
This article was first published in The Business Times on December 22, 2008.
