DBS GROUP HOLDINGS LTD (SGX:D05)
UNITED OVERSEAS BANK LTD (SGX:U11)
Banks - MAS Policy Unchanged – Wider NIM On Track
- Maintain OVERWEIGHT with BUY recommendations on DBS GROUP HOLDINGS LTD (SGX:D05) (Target Price: SGD29.60) and UNITED OVERSEAS BANK LTD (UOB, SGX:U11) (Target Price: SGD29.80).
- The Monetary Authority of Singapore (MAS) kept its monetary policy settings unchanged Friday, which is in line with market expectations. The tracking of the Fed Fund rate (FFR) and SIBOR appears unchanged.
- Whilst the 3-month SIBOR may see limited upside from the current 1.94%, banks should still record 1H19 NIM widening from the lag effect of the SIBOR’s rise over the past 4-6 months.
MAS maintained its monetary policy settings today, amid a worsening global growth outlook and low inflation.
- After tightening its policy last year, the MAS left the slope and width of the currency band unchanged, as well as the level at which it is centered – this stance is consistent with a modest and gradual appreciation path for the currency band.
SG banks to record 1H19 NIM widening from lag effect of SIBOR rise.
- The 3-month SIBOR averaged 1.92% in 1Q19, higher than the 1.73% average in 4Q18, and 1.63% in 3Q18. SG banks’ NIM should widen in 1H19, due to the lag effect from the SIBOR’s increase in 4Q18 and 1Q19.
With the modest and gradual appreciation path for the SGD maintained, we believe the tracking of FFR and SIBOR will remain.
- Market expectation is for the FFR to be flat in 2019, and the 3- month SIBOR (currently 1.94%) to be range-bound as well. Whilst we believe NIM could peak by around mid-2019, potential upside may come from further increases in the FFR.
Remain OVERWEIGHT SG banks on 1H19 NIM expansion and further efficiencies from digitisation over the next few years.
- Both DBS (SGX:D05) and UOB (SGX:U11) are BUYs. Our DBS Target Price of SGD29.60 (at the high end of consensus) is pegged to 1.43x 2020F BV. Our UOB Target Price of SGD29.80 is pegged to 1.35x 2019F BV – we are in the midst of reviewing our UOB Target Price to be pegged to 2020F BV.
Leng Seng Choon CFA
RHB Securities Research
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https://www.rhbinvest.com.sg/
2019-04-12
SGX Stock
Analyst Report
29.600
SAME
29.600
29.800
SAME
29.800
