Singapore Banks - Maybank Kim Eng 2017-02-01: A Challenging Year

Singapore Banking Sector DBS GROUP HOLDINGS LTD D05.SI OVERSEA-CHINESE BANKING CORP O39.SI UNITED OVERSEAS BANK LTD U11.SI

Singapore Banks - A Challenging Year

Dec banking system data reflected a challenging year.
While system loans grew in the month for the first time in 2016, it was partly due to the low base in Dec 2015.
Asset quality continued to worsen, as the percentage of exposures classified in the doubtful and loss categories are now at their highest level since 4Q09.
Maintain Negative sector view.

Dec system loans rose 0.5% YoY (Nov: -1.2%), the first YoY increase in 2016. Improvement in lending was broad-based across all sectors, mainly from manufacturing, building & construction, and financial institutions.
Corporate loans grew 0.6% YoY (Nov: -1.9%). However, consumer sentiment remained weak, as consumer loans rose only 0.2% YoY (Nov: +0.7%), the slowest pace since Sep 2009.
System deposits grew 4% YoY (Nov: +4.9%), with Domestic Banking Unit (DBU) and Asian Currency Unit (ACU) deposit growth at 6.5% and 1.5%, respectively (ACU growth in SGD terms). With that, system LDR tightened to 99.1% (Nov: 97.8%).

As of 4Q16, the percentage of exposures classified as pass was at its lowest level since disclosure started in 2009. Aside from O&G, SMEs are more likely to show weakness in asset quality in a prolonged downturn.
Our view is Singapore banks are likely to report higher provisions to cover rising NPLs.

We maintain our NEGATIVE view on Singapore banks as the overall outlook is likely to remain challenging.
We maintain our forecasts, TPs and recommendations pending upcoming results in mid-Feb; OCBC, DBS and UOB will report 4Q16 results on 14, 16 and 17 Feb, respectively.

Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-02-01

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 15.680 Same 15.680

SELL Maintain SELL 7.400 Same 7.400

HOLD Maintain HOLD 18.360 Same 18.360