Singapore Banks - RHB Invest 2019-10-23: NIM Likely Peaked in 2Q19

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DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)

Singapore Banks - NIM Likely Peaked in 2Q19

• We are NEUTRAL on Singapore banks, with UOB (SGX:U11) as our only BUY recommendation. We spoke to the three banks prior to their blackout period before 3Q19 results release – they guided for NIMs to have peaked in 2Q19 and sluggish 3Q19 loan growth.
• In addition, DBS (SGX:D05) and OCBC (SGX:O39) have relatively larger percentage loan exposure to Greater China (including Hong Kong), and we believe this puts them at risk of more loan loss provisioning going forward.

Expect 3Q19 NIM to have narrowed sequentially.

• The 3-month SIBOR has weakened in recent months. Our recent checks with all three banks suggest 3Q19 NIM should be narrower than 2Q19, due to weakening 3-month SIBOR in recent months; and corporate loan yields being pressured as banks compete for higher-quality loans.

Weak 3Q19 home mortgage numbers.

• Indications point to soft home mortgage disbursements in 3Q19 – July and August Monetary Authority of Singapore (MAS) data on home mortgages have been weak. However, business lending remains relatively stable. The three banks could possibly still record mild 3Q19 sequential overall loan growth.

3Q19 non-interest income should hold up.

• Wealth management should remain respectable in 3Q19, whilst loan-related fees (which are correlated with loan growth) are likely to be more subdued.

3Q19 asset quality remains good.

• The three banks guided for 3Q19 asset quality to remain sound. Looking ahead, we believe asset quality for loans to Greater China could be under more stress – due to the Hong Kong economic slowdown. DBS (SGX:D05) and OCBC (SGX:O39) are more exposed to Greater China, including Hong Kong. UOB (SGX:U11)’s asset quality is seen to be more resilient.
• Downside risks to our forecasts include higher impairment charges, and a sharper fall in the US FFR, which could dampen NIM. Upside risks include stronger earnings from a better-than-expected resolution of the US-China trade war.
• See
  • DBS Share Price; DBS Dividend History; DBS Announcements.
  • OCBC Bank Share Price; OCBC Bank Dividend History; OCBC Bank Announcements.
  • UOB Share Price; UOB Dividend History; UOB Announcements.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-10-23

SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 25.300 SAME 25.300

NEUTRAL MAINTAIN NEUTRAL 11.500 SAME 11.500

BUY MAINTAIN BUY 29.500 SAME 29.500