Why DBS isn’t fazed by its slowing loan growth

It isn’t too exposed to China trade loans.

The banking giant is predicted to produce an unexciting loan growth of 3% by 2017, but analysts say positives can be seen with its lending performance.

According to a report by RHB Research, for one, its reduced exposure to China trade loans are a positive for its asset quality, due to the uncertainty of slower China economic growth.

“Management is guiding low single-digit constant currency loan growth for 2016, whilst 1Q16 loan was down 2.0% QoQ (due to sharp fall in trade loans). In light of the weakening Singapore systemic loan growth of -1.2% YTD for end-May 2016 (although there was a MoM rise of 0.5%), we have lowered our 2016 DBS loan growth forecast to -1.5% YoY (from 2.5% previously),” the report noted.

Meanwhile, there will be gradual asset quality deterioration for the bank, according to RHB Research.

“DBS management, during the 1Q16 results briefing, indicated that the oil and gas (O&G) loans exposure remained stable. The recovery in oil price should have helped stabilise this portfolio,” the report noted.

“Our 2016 credit cost assumption is 32bps (higher than 2015’s 26bps). Moody’s downgrading of Singapore banks’ outlook recently supports our expectations of deteriorating asset quality,” it added.