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

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

2016 was 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.

Loan growth lethargic despite slight improvement 

  • 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%).

Worsening asset quality 

  • 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.

Maintain Negative sector view 

  • 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