After battling stresses from a floundering oil and gas sector over the past year, banks in one of the world's financial capitals are seeing a bright spot emerge: a booming property market.
The increase in home buying activity in Singapore has boosted demand for loans, recent data indicated. And the banks' upcoming second-quarter financial reports will show whether housing loans can actually lift earnings for the rest of 2017, analysts said.
Mortgages make up 15 to 20 percent of total loans at the country's three major banks — DBS Group Holdings, Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) — according to estimates from Phillip Securities Research analyst Jeremy Teong.
"Given the significant weight of [the housing loans] segment, the Singapore banks will benefit from a stronger Singapore mortgage system loans growth," Teong told CNBC, adding that he expected local banks to gain market share against international and non-bank competitors.
Mortgage loan applications were already up by 20 percent in the first quarter of the year from the previous three months, data from Credit Bureau Singapore showed.
The increase came as private housing transactions in the city state grew to a near four-year high in 2017's first quarter even though authorities have kept cooling measures intact, official data showed.
Should the housing market continue to be so hot, the banks are likely to grow their loan portfolios, especially considering the lack of other appealing short-term opportunities, analysts said.
Better earnings for the rest of 2017?
OCBC is scheduled to release its second-quarter report card on Thursday, followed by UOB on Friday. The largest of the trio, DBS, is expected to report on August 4.
The tight competition in the Singaporean lending space may limit banks' margins from the stronger domestic property sector, Maybank Kim Eng analyst Ng Li Hiang wrote in a note last week.
"There is usually a 2-3 month lag between mortgage applications and mortgage disbursements ... We envisage an improvement in housing loan growth in the next few quarters," Ng said. "(But) banks are prepared to tighten pricing to attract new borrowers, potentially limiting the upside to earnings."
In addition, provisions — money set aside for soured debt — and non-performing loans may still climb even as fewer oil and gas support services firms face financial distress.
"The lumpy write-offs have been made last year, but there is still stress in the sector due to weak charter rates and lower drilling activities ... banks may need to pad up provisions as they face lower collateral values in these offshore marine vessels," said Teong.
That means the "remarkably strong" first-quarter performance, which was supported by gains in wealth management and trading income, will be hard to match. Still, a low comparison base a year ago — when troubles among oil and gas support services firms emerged — should help all three banks register net profit growth in the second quarter, analysts said.
Further down the road, the banks should benefit from higher interest rates.
"The market concern has been that the rate hikes in the U.S. have little or no impact on the Singapore interest rates environment. Nonetheless, we are gradually seeing some pass-through," said Nomura analyst Marcus Chua.