Singapore Banks - RHB Invest 2018-07-06: Mortgage Weakness From Property Measures

Singapore Banks Property Cooling Measures DBS GROUP HOLDINGS LTD SGX:D05 UNITED OVERSEAS BANK LTD SGX:U11

Singapore Banks - Mortgage Weakness From Property Measures

We maintain our NEUTRAL sector call.
The Singapore Government announced the raising of ABSD rates and the lowering of LTV limits on residential property purchases. The measures are expected to dampen demand for residential property, particularly investment properties.
Amongst the three banks, UOB has the highest exposure to housing loans, at 27.6% of its total loans – hence, UOB’s share price may be impacted more negatively in the short term.
Whilst banks’ share prices are likely to weaken as a consequence of these property measures, the longer term view remains positive. We believe the rising US FFR will lead to a higher SIBOR and widen the banks’ NIM. Hence, we recommend clients to BUY into banks on weakness to ride on the trend of widening NIM.

The higher additional buyer’s stamp duty (ABSD) requirements should lower investment demand for residential property, as the increase is mainly targeted at buyers of second and subsequent properties.
The lower loan to value (LTV) limits means buyers get reduced financing for their property purchases.

The measures are expected to dampen demand for residential property. Amongst the three banks, UOB has the highest exposure to housing loans, at 27.6% of its total loans. DBS has the least exposure, at 22.1% of its loans. It would appear the measures are more negative for UOB than DBS.
The impact on banks’ housing loan growth over the next few quarters is likely to be muted, as most of these housing loans would be drawdown of loans already approved earlier. We have been conservative on our banks loan growth forecasts (we forecast 2018 and 2019 loan growth of 8.0% and 6.5% for both DBS and UOB). Our 2018 loan growth forecast is in line with banks’ management guidance of mid to high single-digit.
For now, we are maintaining our loan growth forecasts.

Whilst banks’ share prices are likely to weaken as a consequence of these property measures, the longer term view remains positive.
We believe the rising US FFR will lead to a higher SIBOR (3-month SIBOR has recently risen to 1.63%, from end-Jun’s 1.52%) and widen the banks’ NIM. Hence, we recommend clients to BUY into banks on weakness to ride on the trend of widening NIM.

Leng Seng Choon CFA RHB Invest | https://www.rhbinvest.com.sg/ 2018-07-06

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