DBS GROUP HOLDINGS LTD (SGX:D05)
UNITED OVERSEAS BANK LTD (SGX:U11)
OVERSEA-CHINESE BANKING CORP (SGX:O39)
Singapore Banks - ... And Relax
MAS measures may improve dividend visibility
- The MAS has announced several relaxing measures that will help widen capital buffers & liquidity as well as lower credit charge volatility. See media release. It has also suspended/postponed some industry reforms and eased onsite supervision requirements. Even prior to this relaxation, the domestic banks were well capitalized and had high levels of liquidity.
- We believe these measures are more of a supportive signal for the sector to keep liquidity flowing, while also providing some clarity to the markets in terms of credit charges.
- Additionally, the regulator’s explicit clarification that it sees no need to restrict dividends, supports the sector’s strong dividend visibility and defensiveness regionally.
- OCBC (SGX:O39) and UOB (SGX:U11) are our preferred picks.
No disruption to dividend payments
- The MAS is allowing all of regulatory loss allowance reserves (RLAR) to be recognized as Tier II capital and has reduced net stable funding requirements (NSFR) for loans under 6-months. These actions increases liquidity and capacity to lend. While the banks already have strong capital levels (CET1 530bps higher than regulatory minimum) and NSFR > 100%, we believe this is a strong signal for the sector to keep liquidity flowing to businesses and individuals.
- MAS has stated that capital buffers should not be used for share buybacks, but also says that it sees no need to restrict dividend policies – as some Western regulators have done.
- Share buybacks are a small portion of capital return for the Singapore banks. Clarity on dividends provides significant visibility for the 6.4% 2020E yield currently offered by the sector.
Smoother credit charge recognition
- MAS has also sought to mitigate the requirements of recognizing expected lifetime credit losses under FRS109 by providing guidance on incorporating the significant fiscal & monetary relief measures that have been introduced. This provides extra space for banks to smoothen and navigate credit charge volatility going forward, in our view. This should also support improved earnings visibility for the sector, we believe.
Defensive value intact
- While operating conditions may remain volatile as this pandemic progresses, trading below 1x 2020E PB with a dividend yield amongst the highest in the region, we believe the Singapore banks offer defensive value at this point in the cycle.
- We prefer OCBC (SGX:O39) and UOB (SGX:U11) given their gearing to ASEAN and a deposit mix that should see relatively lower impact from falling rates.
- See
Thilan Wickramasinghe
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-04-07
SGX Stock
Analyst Report
21.990
SAME
21.990
22.550
SAME
22.550
10.320
SAME
10.320
