The fortunes of big banks are often tied to a country’s GDP growth, so when Singapore’s growth fell off a cliff in 2QFY2020, it was not surprising that the three local banks reported double-digit y-o-y declines in net profits in 2QFY2020 and 1HFY2020.

On Aug 11, the Ministry of Trade and Industry (MTI) revised downwards Singapore’s 2QFY2020 GDP growth to –13.2% y-o-y, from the advance estimate of –12.6%. The revision was mainly due to weaker manufacturing output in June. MTI has narrowed its FY2020 GDP growth forecast range to –7% to –5% from –7% to –4%, attesting to the impact of the Covid-19 pandemic on external demand, a slower reopening of national borders and the slower return to work of foreign workers. Indeed, this is the worst economic contraction in Singapore’s history which had deteriorated sharply from –0.3% in 1QFY2020.

Meanwhile in the banking sector, for the 1HFY2020 ended June, DBS Group Holdings reported 26% y-o-y lower net profit while Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) reported 42% and 30% y-o-y lower net profit respectively. In 2QFY2020 ended June, DBS’s net profit was 22.2% y-o-y lower while OCBC and UOB were 40.3% and 39.9% y-o-y lower respectively.

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