Singapore Banks 4Q19 - Maybank Kim Eng 2020-02-03: What To Expect

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

Singapore Banks 4Q19 - What To Expect

DBS (SGX:D05) will be reporting 4Q19 results on 13 Feb, followed by OCBC (SGX:O39) & UOB (SGX:U11) on 21 Feb.
We are expecting a moderating quarter driven by slowing loan growth and weaker NIMs as falling interest rates get reflected in asset yields. Fee income should also see seasonal weakness, but trading income potentially may surprise on the upside given falling rates.

Asset quality should be the key point of focus, given volatility in North Asia and slow domestic growth. Credit charge guidance on the backdrop of the rapidly spreading Wuhan epidemic and any stress-test outcomes will be of major interest.
Nevertheless, strong positive momentum in FY19 and robust capital levels should open potential for higher dividends, particularly for DBS and OCBC, in our view.

Dec system loans moderated to 4.2% y-o-y – the slowest pace of growth since Jun 2019, according to MAS. This was primarily driven by ACU lending slowing down across almost all segments. We believe this is partly reflective of weaker North Asian macro as well as some year end window dressing by corporate borrowers.
Separately, SIBOR has contracted 22bps since the start of 3Q19. We expect to see the impact of this showing through 4Q19 NIMs as asset yields are revised down.

We expect a seasonal slowdown in wealth/fund management fees (40% of sector fees) given the holiday period in 4Q. However, continued contraction of interest rates during quarter may give rise to stronger trading & investment security income. In 3Q19, this increased 37% y-o-y largely from falling rates.

In 9M19, net allowances increased 82% y-o-y for the sector. Continued woes in Hong Kong and slower Chinese growth may drive higher cautionary provisions in 4Q19.
The stress test impact guidance of the rapidly spreading Wuhan virus epidemic will need to be closely watched.
On the other hand, write back from past O&M sector provisions may provide some offset as has been the case in 2019 YTD.

Despite recent falls, interest rates remain higher viz-a-viz 2018. As a result, we expect earnings momentum to remain positive y-o-y.
With CET1 level at robust levels, there may be potential for higher dividends. DBS and OCBC have a higher likelihood of this given CET1 levels are well in excess of regulatory requirements.
See

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-02-03

SGX Stock Analyst Report BUY MAINTAIN BUY 29.920 SAME 29.920

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HOLD MAINTAIN HOLD 11.260 SAME 11.260