Banking – Singapore - UOB Kay Hian 2018-07-10: Past Cooling Measures Have Already Tamed Investment Demand

Banking – Singapore - UOB Kay Hian Research 2018-07-10: Past Cooling Measures Have Already Tamed Investment Demand DBS GROUP HOLDINGS LTD SGX:D05 OVERSEA-CHINESE BANKING CORP SGX:O39 UNITED OVERSEAS BANK LTD SGX:U11

Banking – Singapore - Past Cooling Measures Have Already Tamed Investment Demand

  • The latest set of cooling measures for residential property announced last Thursday will have limited impact on loan growth.
  • The recent demand recovery in residential properties was relatively mild and short-lived. Homes purchased for investment accounted for just 27.2% of the new housing loans limit granted in 4Q17 as past cooling measures have already cut investment demand.
  • Maintain OVERWEIGHT.



WHAT’S NEW


More macro prudential measures to curb speculation.

  • Last Thursday, the Monetary Authority of Singapore (MAS), Ministry of National Development (MND) and Ministry of Finance (MOF) have jointly announced new property cooling measures aimed to curb speculation. The authorities raised additional buyer’s stamp duty (ABSD) by 5ppt for the second and subsequent residential properties. Loan-to-value (LTV) ratio for all new housing loans was lowered by 5ppt.
  • Developers will incur a higher ABSD of 25% if they fail to build and sell their projects within five years, compared with 15% previously. They were also hit by an additional ABSD of 5%, which is non-remittable and has to be paid upfront upon purchase of residential property. These new rules are likely to dampen en-bloc transactions.

Exposure to residential properties is substantial.

  • DBS and UOB have more exposure to Building & Construction at 19.6% and 22.3% of total loans respectively. 
  • OCBC and UOB have more exposure to residential mortgages at 27.6% and 27.9% of total loans respectively.
  • Overall, UOB has the largest exposure at 50.2% on an aggregate basis, followed by OCBC at 44.3%. Traditionally, delinquency for residential mortgages is extremely low and current NPL ratio is just 0.4%. This report is share at SGinvestors.io.

Residential properties not a catalyst for loan growth.

  • The recent recovery in residential properties was relatively mild and short-lived. Property price index for non-landed properties gained just 9.4% in 2H17 and 1H18, compared with a four-year rally of 56.2% (2010-13) after the correction triggered by the Global Financial Crisis. The volume of private residential properties sold by developers contracted 41.2% y-o-y to 4,461 units in 5M18.
  • Understandably, loan growth for Building & Construction and residential mortgages were lacklustre at 1.4% and 4.8% y-o-y respectively in May 18. Thus, the current pre-emptive strike to smother the buying frenzy and en-bloc fever would only have a moderate impact on loan growth compared with previous rounds of cooling measures. This report is share at SGinvestors.io.

Past cooling measures have already curbed investment demand.

  • Homes purchased for owner occupation accounted for the lion’s 72.8% share of new housing loans limit granted in 4Q17. Banks are not reliant on homes purchased for investment.



No lasting damage from cooling measures.

  • We reviewed how banks’ share prices responded to previous rounds of cooling measures. We observed that banks’ share prices corrected by 1-4% within the first week during the cooling measures implemented in Dec 11 and Jan 13. The exception was DBS who was particularly hard hit with a correction of 7.5% in the first week after cooling measures were introduced in Dec 11. 
  • Most losses reversed to gains after three months. This report is share at SGinvestors.io.


ACTION


Trade conflict between global powers is the main swing factor.

  • The escalation of trade conflicts between the US and China create uncertainties. Being an open economy reliant on exports, Singapore is vulnerable to disruption to free trade. Negotiations between the US and China are on-going and has yet to reach a conclusion. 
  • Domestically, we believe the latest cooling measures have limited impact on banks’ loan growth as past cooling measures have already tamed investment demand. This report is share at SGinvestors.io.


Maintain OVERWEIGHT.



SECTOR CATALYSTS

  • Rising interest rates and corporate bond yields.
  • Improvement in dividend payout and yield.


ASSUMPTION CHANGES

  • We maintain our existing earnings forecasts.


RISKS

  • Rapid increase in the federal funds target rate (steep rate hikes) that may trigger capital outflows from countries in Southeast Asia.







Jonathan Koh CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-07-10
SGX Stock Analyst Report BUY Maintain BUY 30.150 Same 30.150
BUY Maintain BUY 14.280 Same 14.280
NOT RATED Maintain NOT RATED 99998.000 Same 99998.000



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