Banks - RHB Invest 2016-10-04: Minimal Impact From Indonesia's Tax Amnesty

Banks - RHB Invest 2016-10-04: Minimal Impact From Indonesia’s Tax Amnesty Singapore Banks DBS GROUP HOLDINGS LTD D05.SI  OCBC OVERSEA-CHINESE BANKING CORP O39.SI  UOB UNITED OVERSEAS BANK LTD U11.SI 

Banks - Minimal Impact From Indonesia’s Tax Amnesty

  • Some market players had earlier expected Singapore banks to record high AUM outflows from their wealth management businesses, consequent to Indonesia’s tax amnesty scheme. 
  • Thus far, the amount repatriated to Indonesia from Singapore is only 12% of the declared amount kept in the island state and is a small 1-2% of the wealth management AUM of the local banks. 
  • We are NEUTRAL on Singapore banks, with mild asset quality deterioration being a concern. 
  • On the back of the FFR hike, we like DBS, which gains the most from interest rate strength.



When the first phase of the 9-month Indonesian tax amnesty scheme ended last month

  • When the first phase of the 9-month Indonesian tax amnesty scheme ended last month, Indonesian taxpayers had declared > IDR3,600trn in assets (SGD377bn), both domestically and overseas. Of that figure, IDR952trn were overseas assets, of which 70% was kept in Singapore. 
  • The amount repatriated from the island republic back to Indonesia stood at IDR79trn (SGD8.3bn), or 12% of the declared amount kept in Singapore.


First phase repatriation from Singapore to Indonesia is only a small 1-2% of local banks’ asset under management (AUM). 

  • Data from the three Singapore banks under our coverage showed that wealth management AUM amounted to ~SGD321bn, comprising DBS’ SGD151bn, Oversea-Chinese Banking Corp’s (OCBC) SGD82bn and United Overseas Bank’s (UOB) SGD88bn. Hence, the amount repatriated to Indonesia from Singapore accounts for only 2.6% of the three banks’ total AUM.
  • If we factor in the AUM of other private banks in Singapore, the percentage of such assets repatriated to Indonesia is likely to be a small 1-2% only.


Expect more repatriation in subsequent phases, but the repatriation amount seems to be a small percentage of AUM. 

  • The tax rate for those who repatriate their assets now (Phase 2) is 1ppt higher than the first phase at 3%.
  • Meanwhile, those declared but not repatriated will see a 6% tax rate (vs 4% in Phase 1). The tax rate is to rise further in Phase 3. We believe there is likely to be more repatriation of funds from Singapore to Indonesia going forward, but the experience of Phase 1 suggests that the amount repatriated is unlikely to be a large percentage of Singapore banks’ AUM.


We see minimal adverse impact of the Indonesian tax amnesty scheme on Singapore banks’ earnings. 

  • However, the slowing economic environment is likely to exert upside pressure on NPLs. We expect more negative news flow in the oil & gas space, such as the bond default of Malaysia-listed oil & gas services provider Perisai Petroleum Teknologi (Perisai) (PPT MK, SELL, TP: MYR0.15).
  • We are, therefore, NEUTRAL weight on the local banking sector.


DBS is our preferred stock pick

  • DBS is our preferred stock pick and the only BUY recommendation within our Singaporean banks coverage universe, ie SG Banks. DBS is seen as gaining the most from rises in US federal fund rate (FFR). Our in-house view is that the next hike is likely to be later this year, although some market players expect the hike in 2017 only. 
  • Our view is that the FFR hike will lead to a higher Singapore Interbank Offered Rate (SIBOR). For a 10bps rise in SIBOR, our sensitivity analysis points to net profit rising: 
    1. 1.6% for DBS; 
    2. 0.7% for OCBC; 
    3. 1% for UOB.
  • Whilst some market players are concerned with DBS’ oil & gas exposure, we have assumed higher provisions in our forecasts.






Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2016-10-04
RHB Invest SGX Stock Analyst Report ADD Maintain BUY 17.30 Same 17.300
NEUTRAL Maintain NEUTRAL 8.68 Same 8.68
NEUTRAL Maintain NEUTRAL 18.85 Same 18.85



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