DBS GROUP HOLDINGS LTD (SGX:D05)
UNITED OVERSEAS BANK LTD (SGX:U11)
OVERSEA-CHINESE BANKING CORP (SGX:O39)
Banks - System Growth Supported By Regional Ops
- System loans expanded 0.2% m-o-m in Feb 2019, reversing the -0.5% m-o-m previously. Business loan growth offset the contraction in consumer loans.
- Regional loan expansion outpaced domestic growth in Feb 2019. HK loan growth picked up to +1% m-o-m in Jan 2019 following a lacklustre 2H18.
- Maintain Overweight on the sector. We believe that the softer loan growth has been priced into valuations. Preference: DBS Group (SGX:D05), UOB (SGX:U11), then OCBC (SGX:O39).
Feb 2019 +0.2% m-o-m loan growth upheld by business loans
- Industry (DBU + ACU) loan growth came in at +0.2% m-o-m in Feb 2019 – reversing the 0.5% m-o-m contraction seen in Jan 2019. Most of the growth was driven by loans to financial institutions (FIs, +0.9% m-o-m) and the manufacturing industry (+0.8% m-o-m) while broad-based softness across various consumer segments resulted in a fourth consecutive month of contraction (-0.2% m-o-m).
- The 0.2% m-o-m contraction in Singapore mortgages could be due to fewer property launches and overall cautious sentiment by both developers and buyers in addition to the property cooling measures introduced in Jul 2018 – as was seen in 2H18.
- In y-o-y terms, industry loan growth tapered to +3.3% in Feb 2019 from a two-year peak of +10.0% in Jul 2018.
Deposit growth still led by FDs; aggressive pricing likely to slow
- The 1.0% m-o-m deposit expansion in Feb 2019 was fueled by strong fixed deposit (FD) growth (+2.8% m-o-m) as CASA balances contracted 0.2% m-o-m. Beginning Apr 2018, FD growth (+18.9% y-o-y in Feb 2019) had outpaced that of CASA (-1.0% y-o-y) for most of the year as Singapore banks built up their bases in anticipation of higher funding.
- FD rates amongst the larger banks in Singapore have risen to 1.4-2.1% in Mar 2019 from the 1- 1.9% seen in Jan 2019. We think that the pause in Fed rate hikes for FY19 would slow any further increase in FD rates – a positive for bank NIMs as loan pricing catches up to higher 3M SIBOR.
- System LDR was stable at 105.4% (Feb 2019); that of domestic banks was lower at 86-88% (4Q18).
Encouraging +1.0% m-o-m loan growth in Hong Kong
- Regional loan growth (+0.3% m-o-m) outpaced that of domestic loans (+0.2% m-o-m) in Feb 2019 – the expansion was wholly attributable to business loans.
- Loan growth in Hong Kong picked up encouragingly to +1.0% m-o-m in Jan 2019 (Dec 2018: +0.3% m-o-m) following a lacklustre showing in 2H18, although Malaysian loan growth was disappointing at -0.2% m-o-m in Feb 2019.
Maintain Overweight; sector trades below mean of 1.3x CY19F P/BV
- In all, we expect loan growth across banks to taper to mid-single digits (from 7-11% in FY18) as continued macroeconomic headwinds impede global growth.
- Catalyst/ downside risks: a resolution of US-China trade tensions/a Fed rate cut.
Highlighted Companies
- Rating: ADD, Target Price S$29.00.
- Amongst peers, DBS has the largest exposure to Greater China (30% of loan book). We think that stronger trade loan volumes in HK should support 1Q19 growth.
- Rating: HOLD, Target Price S$12.00.
- While OCBC has cautioned for overall loan growth to moderate in FY19, a sustained improvement in HK loans may translate into a better showing for OCBC Wing Hang.
- Rating: ADD, Target Price S$29.00.
- UOB has the largest ASEAN exposure and could benefit from a displacement of supply chains out of Greater China in the event of escalating trade tensions.
Andrea CHOONG
CGS-CIMB Research
|
LIM Siew Khee
CGS-CIMB Research
|
https://research.itradecimb.com/
2019-04-01
SGX Stock
Analyst Report
29.000
SAME
29.000
29.000
SAME
29.000
12.000
SAME
12.000
