Singapore's Temasek says its portfolio fell for the first time in four years due to Covid-19

A Temasek Holdings signage at their office in Singapore.

Munshi Ahmed | Bloomberg | Getty Images

SINGAPORE — Singapore’s state investment company Temasek said Tuesday the net value of its portfolio fell for the first time since 2016 as the coronavirus pandemic hit global markets.

The size of Temasek’s portfolio fell to 306 billion Singapore dollars ($223.73 billion) for the financial year that ended March 31, around 2.2% lower than the previous year’s 313 billion Singapore dollars, the company said in its annual report. 

Its one-year shareholder return was 2.28% lower, said the company. But returns were 5% over a 10-year period and 6% over 20 years, it added. Those returns take into account all dividends paid to Temasek’s shareholder, less any capital injections.

Temasek — an active equity investor in both the public and private space — is owned by the government of Singapore, a tiny but wealthy Southeast Asian nation.

Temasek attributed its investment performance in the past year to the spread of the coronavirus disease, or Covid-19, which caused global markets to plunge in March. The company noted markets have recovered since then, but warned of uncertainties such as U.S.-China tensions.

Dilhan Pillay Sandrasegara, executive director and chief executive of Temasek International, said both the U.S. and China have been “significant destinations” for the company’s investments in the last five to six years.

He explained that what happens to the U.S.-China relationship can affect other economies and companies that operate globally, and Temasek is keeping a close watch on the developments relating to the two economic giants.  

Going global

The company — a closely followed global investor — invested mainly in Singapore companies in its early days, but has turned into a major global investor in recent years. About three-quarters of Temasek’s portfolio exposure is outside its home country and in places such as China, North America and Europe. Two-thirds of its underlying exposure is in Asia, the report said.

Assets in China accounted for 29% of Temasek’s investment portfolio in the last financial year — the largest geographical share. That was followed by Singapore at 24% and North America at 17%, according to the company’s annual report.

In terms of sectors, the investor has the largest exposure to financial services, which accounted for around 23% of the underlying assets of its portfolio.

Temasek said it continued to invest in the financial services, technology and life science sectors. Overall, the company invested 32 billion Singapore dollars ($23.42 billion) and divested 26 billion Singapore dollars in the last financial year.

Singapore's largest bank reports 22% fall in quarterly profit as it guards against pandemic-induced risks

The building of DBS, Singapore’s largest bank, at the city state’s central business district.

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DBS Group Holdings, the largest bank in Singapore and Southeast Asia, reported a 22% fall in second-quarter net profit compared to a year ago as it set aside more money for loan losses that could arise from the economic impact of the coronavirus pandemic.

The bank said on Thursday that net profit fell to 1.25 billion Singapore dollars ($912.9 million) in the April-to-June quarter — down from 1.6 billion Singapore dollars a year ago. It beat Refinitiv estimates of around 1.19 billion Singapore dollars.

Here are the other financial indicators that DBS reported:

  • Total allowances for loan losses amounted to 849 million Singapore dollars ($620 million) in the second quarter, up from 251 million Singapore dollars a year ago;
  • Total income was roughly steady at 3.73 billion Singapore dollars;
  • Net interest margin, a measure of lending profitability, dipped to 1.62% from 1.91% in the prior year;
  • Ratio of non-performing loans was at 1.5%, unchanged from the previous year.

The bank said in a statement accompanying the earnings release that several income streams are improving as economies ease lockdown measures meant to slow the spread of the coronavirus.

Separately, smaller rival United Overseas Bank reported a 40% year-over-year decline in second-quarter net profit at 703 million Singapore dollars ($513.4 million) — below estimates by Refinitiv. 

UOB also put aside additional allowances of 379 million Singapore dollars ($276.8 million) in the quarter “in view of COVID-19 impact.”

Singapore's top banks are reporting earnings this week. Here's what to expect

View of the Singapore Central Business District.

Suhaimi Abdullah | Getty Images News | Getty Images

Singapore’s top three banks are expected to report another quarter of lackluster financial results this week as ultra-low interest rates cap margins and the coronavirus pandemic continues to ravage the global economy.

The country’s largest bank, DBS Group Holdings, and its smaller rival United Overseas Bank are scheduled to release their second-quarter earnings report on Thursday. The last of the trio, Oversea-Chinese Banking Corp, is set to report results on Friday.

The financial report cards come as the Singapore economy entered a technical recession in the second quarter following the implementation of a partial lockdown — which the government called a “circuit breaker” — to slow the spread of the coronavirus disease or Covid-19.

Here are what analysts are expecting from the three banks this week:

  • Low interest rates globally would squeeze net interest margins or NIMs, a measure of lending profitability, by 11 to 26 basis points compared to the previous quarter, said Krishna Guha, an equity analyst at Jefferies.
  • DBS is likely to record the sharpest drop in NIMs, while OCBC is expected to see the least decline, Guha said.
  • Singapore’s “circuit breaker” will hit fees from credit cards, wealth management and investment banking, said Rui Wen Lim, equity research analyst from DBS.
  • The banks could set aside “significantly higher allowances” compared to last year as they prepare for potential loan losses, said David Lum, analyst from Daiwa Capital Markets.  

All in, net profit at the three Singapore-listed banks could fall by between 19% and 33% in the second quarter, according to Refinitiv estimates. OCBC is expected to be hit the least because its insurance arm likely recorded gains in its investment portfolio, analysts said.

Uncertainty ahead

The subdued set of earnings reports could further dampen the attractiveness of the three Singapore-listed lenders. Share prices of the three banks were hit last week after the country’s financial regulator called on banks to limit dividend payouts for 2020.

Investors have traditionally favored Singapore banks for yield, which is now under threat given the cap on dividends and uncertainties surrounding the virus outbreak.

Thilan Wickramasinghe from brokerage Maybank Kim Eng is one analyst who prefers staying away from banks for now.

“Significant uncertainty exists in terms of the length and depth of the pandemic,” he wrote in a note last week.

“Moreover, with a precedent now being set where social interests take priority over shareholder interests, the risks of dividend caps lasting beyond 2020 cannot be ruled out,” he added. “We prefer to wait until better value emerges for the sector.”

Fitch Ratings last month warned that Singapore’s banks are facing a weakening operating environment in their home base and other Asian markets where they operate. In addition to Singapore, other economies the banks have presence in include Hong Kong, Malaysia and Indonesia. 

 “We expect the operating environments to which the banks are exposed to deteriorate as a result of the coronavirus pandemic, which will put pressure on asset quality, profitability and capital,” said the ratings agency.

Shares of Singapore's top banks fall after regulator limits dividend payouts for 2020

Automated teller machines of the three Singapore-listed banks: OCBC, DBS and UOB.

Munshi Ahmed | Bloomberg | Getty Images

Shares of Singapore’s top three banks tumbled in early trade Thursday after the country’s financial regulator asked lenders to cap dividends this year in light of the economic uncertainty, due in part to the coronavirus pandemic.

DBS Group Holdings and Oversea-Chinese Banking Corp — Singapore’s two largest banks — suffered losses of over 3% from the previous close. Their smaller peer, United Overseas Bank, fell by more than 2%.

The three banks account for around one-third of the benchmark Straits Times Index, which dipped around 1.6% on Thursday.

The country’s financial regulator and central bank, the Monetary Authority of Singapore, on Wednesday urged banks to cap their total dividends per share this year to 60% of last year’s amount.   

It also said lenders can offer shareholders the option of receiving the dividends in the form of additional shares instead of cash.

Investors need to keep in mind the strong capital positions … the customary prudence of the central bank and the fact that the 60% cap is not as severe as restrictions in some other jurisdictions.

Krishna Guha

equity analyst at Jefferies

The announcement by MAS followed similar — and comparatively more stringent — moves by other financial regulators around the world. The Bank of England urged banks to scrap dividends this year, while Australia’s financial watchdog recommended banks and insurers pay less than half of their profits to shareholders for the rest of 2020.

Singapore’s regulator said the dividend restrictions are a pre-emptive measure. It added that stress tests showed local banks remain resilient even under “adverse conditions consistent with a serious and prolonged public health crisis.

The country is one of the worst-hit in Southeast Asia by the coronavirus. As of Wednesday, Singapore reported over 51,500 cases and 27 deaths, according to its health ministry.

Its economy is forecast to shrink by between 4% and 7% this year — which would be the country’s worst recession since its independence in 1965.

“MAS wants to ensure the banks’ capital buffers remain ample in the face of significant uncertainties ahead, so that they can sustain lending to the economy,” said Ravi Menon, managing director of MAS.

Krishna Guha, equity analyst at Jefferies, said in a Thursday note that the dividend cap is likely to weigh on investor sentiment.

“That said, investors need to keep in mind the strong capital positions … the customary prudence of the central bank and the fact that the 60% cap is not as severe as restrictions in some other jurisdictions,” he said.