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ALL three Singapore-listed banks did better than expected in the second quarter, fuelling hopes that the worst may really be over for the broader economy.
The bank bosses also sounded far more upbeat this week than they did three months earlier, though they stopped short of suggesting that the improvement in sentiment among investors and businesses and the brighter economic outlook suggested by recent data will mean a sharp rebound in earnings.
'The recovery has been a bit more rapid than we originally anticipated,' said DBS Group chairman Koh Boon Hwee, who is overseeing management of the bank.
'For most of our customers, liquidity and access to financing is probably not a concern today.
'As a matter of fact, with the improving economy, there is some competition beginning to appear in terms of loans.'
But he warned that 'the jury is still out on the pace of the recovery'.
On Wednesday, United Overseas Bank (UOB) chief executive Wee Ee Cheong said it was 'clear' that 'maximum fear is behind us', but cautioned that 'the bottoming-out process and economic recovery will be gradual'.
And on Monday, OCBC chief executive David Conner said that despite 'growing consensus that the worst is over' for the global economy and financial markets, 'the pace of recovery remains uncertain'.
The banks' combined net profit for the three months to end-June fell 11 per cent from a year earlier to $1.49 billion. Compared with the first quarter, however, combined earnings rose 7 per cent, as all three banks beat analysts' net profit forecasts.
Charges for bad loans and other assets, including general provisions for possible future losses on loans and investment securities, rose sharply from a year earlier, but the banks said credit pressures are easing and they do not expect their loan books to deteriorate badly in the coming months.
Total charges and provisions for bad loans and other assets rose to $1.04 billion in Q2, compared with $1.01 billion in the first quarter and just $325 million a year earlier.
Non-performing loans (NPLs) also rose, but the banks suggested there are no systematic weaknesses or worrying trends in their loan portfolios.
Analysts expect the proportion of NPLs - which tends to rise with a lag after the economy slips into recession - to climb further but not to alarming levels, as Singapore and other parts of Asia have not suffered job losses on the scale seen in the Asian financial crisis.
DBS, already the biggest lender by far, has been the most aggressive of the three banks in pursuing loans growth. Its net customer loans after deducting allowances for bad loans rose 8 per cent to $128 billion over the year to end-June. In contrast, net customer loans at OCBC and UOB hardly grew over the same period.
Rajan Raju, DBS head of consumer banking, said the bank has been aggressively expanding its consumer business across its core markets, attracting savings deposits and home loan customers in Singapore, Hong Kong and Taiwan.
At OCBC, Mr Conner sounded a more cautious note. 'We're banking everything that we think is appropriate, but we don't think that this is an appropriate time to be pushing aggressively for loan growth,' he said.
UOB said it has been 'prudent and selective' in lending.
But the banks also said they expect loan demand - which dropped sharply as businesses shelved expansion plans when the financial turmoil was at its worst late last year - to pick up. OCBC and UOB both said they approved far more loans in Q2 than in Q1, which will be drawn down in the coming quarters.
Total net interest income from the banks' lending activities rose 5 per cent from a year earlier to $2.73 billion, boosted by aggressive lending by DBS, and wider net interest margins at OCBC and UOB - which meant the loans the two banks made were more profitable despite the slower growth in their loan books.
All three banks also benefited from sharply higher trading and investment gains as conditions in financial markets improved and equity prices rallied in Q2.
Their combined non-interest income from activities such as stockbroking, wealth management, trading and investments rose to $1.73 billion, up 16 per cent from a year earlier and 6 per cent higher than in the first quarter.
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