SINGAPORE – Singapore banks are set to post higher profits for the fourth quarter because of higher interest rates, though growth momentum is poised to slow as big central banks pivot towards rate cuts, and volatile markets weigh on their mainstay wealth business.

The banks are also expected to see sharper scrutiny of their wealth management business, as a result of a US$2.2 billion (S$3 billion) money laundering scandal that hit Singapore in 2023, affecting the flow of assets, analysts say.

DBS Group, Singapore’s No. 1 lender by assets, will kick off the earnings season on Feb 7, followed by UOB on Feb 22 and OCBC Bank on Feb 28.

“We think earnings momentum for the Singapore banks has peaked,” said Mr Thilan Wickramasinghe, Maybank Investment Banking Group’s head of research for Singapore and regional head of financials.

“The tailwinds enjoyed by rising interest rates in 2023 are unlikely to sustain this year,” he added.

Federal Reserve chairman Jerome Powell said on Jan 31 that interest rates had peaked and would move lower in the coming months. In South-east Asia, Indonesia’s central bank said this week it had room to lower interest rates in 2024 to lift growth.

DBS is expected to post a 2.9 per cent rise in earnings per share (EPS) in the fourth quarter versus a year earlier, and EPS is forecast to drop 2.09 per cent in the March quarter from a year earlier, estimates from data provider LSEG showed.

OCBC and UOB are expected to show the same trend, the data showed.

Besides higher global interest rates, Singapore banks have also benefited from strong inflows of wealth over the last few years.

The city state’s biggest money laundering case, however, has resulted in banks taking longer than usual to perform due diligence on clients and closing accounts in some cases, which, some analysts say, will weigh on their wealth business.

“The banks would have more stringent AML and CDD procedures to follow, which could increase expenses as more employees and time are required,” said Mr Glenn Thum, senior research analyst at Phillip Securities Research.

AML and CDD refer to anti-money laundering and customer due diligence.

“The banks would also need to be more careful in accepting customers and loans, which could hamper their desired growth,” Mr Thum added.

Faced with these challenges, the Singapore banks are likely to bet on a surge in fee income and a recovery in loan growth as interest rates start to dip, to cushion the impact on earnings, Mr Thum said. BLOOMBERG