SINGAPORE (May 15): The three local banks have taken slightly different approaches to pro-visioning and dividends. Credit costs are allowances or provisioning for both impaired and non-impaired loans. The relationship between how these allowances are calculated and the economy, also affects risk-weighted assets (RWA). Allowances affect earnings which is part of the numerator in the common equity tier 1 (CET1) ratio, while RWA is the denominator.
First the provisioning. United Overseas Bank’s (UOB) general provisions of $61 million in 1Q2020 looks very low compared to Oversea-Chinese Banking Corp and DBS Group Holdings.
UOB’s credit costs in 1QFY2020 was just 36 basis points compared with OCBC which announced 86bps of credit costs. DBS’s total credit costs shot up to 1.08% compared to its specific provisions of 20bps in FY219, when it had a write-back of $58 million in general provisioning.