Singapore banks set aside extra allowances to account for heightened uncertainty
[SINGAPORE] The local banking trio have taken extra allowances in their first-quarter 2025 results amid a rise in uncertainty in the macroeconomic environment.
DBS, OCBC and UOB each said this was a pre-emptive step to beef up their reserves as they navigate the impact of US tariffs and a possible economic slowdown, even as asset quality remains stable.
DBS took general allowances of S$205 million in Q1 to strengthen its reserves.
OCBC's allowances rose 2 per cent on quarter to S$212 million, comprising S$94 million for impaired assets and S$118 million for non-impaired assets. Allowances for non-impaired assets were up due to changes in credit risk profiles and additional management overlays.
UOB's total allowance increased to S$290 million in Q1 from S$212 million in Q4, as higher pre-emptive allowance was set aside to strengthen provision coverage.
Due to uncertainty, UOB suspended its 2025 guidance, with plans to resume this once the macroeconomic situation stemming from US tariffs stabilises.
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Nevertheless, the banks noted that their respective asset qualities remain sound.
DBS' non-performing loans (NPL) ratio was flat at 1.1 per cent; OCBC's NPL ratio fell 10 basis points on year to 0.9 per cent; while UOB's NPL ratio rose slightly to 1.6 per cent from 1.5 per cent, due to a rise in credit costs from taking the additional allowances.
The three local banks said they saw less direct impact from US tariffs.
They were more concerned about a possible fall in consumer confidence and subsequent economic slowdown if the situation persists.
DBS chief executive Tan Su Shan, who officially took on the role in April, sees limited impact to 'first-order risks' – which are direct risks on sectors and countries – given that its exposure to US-China flows is muted.
She noted that the lender continues to stress test for 'second-order risks'.
UOB chief executive Wee Ee Cheong also said the greater severity lies in the 'second-order impact', though the extent of this is still unfolding.
'If the uncertainty continues, then it will affect consumer confidence,' he said. 'This is where the slowdown in the economy will come in.'
Meanwhile, OCBC chief executive Helen Wong noted that the bank is 'quite prepared' to deal with the tariff situation, and will continue to be 'very vigilant' on underwriting transactions, amid the uncertainties.
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