Singapore Banks - Maybank Kim Eng 2020-04-07: ... And Relax

Singapore Banks - Maybank Kim Eng Research | SGinvestors.io 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






Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-04-07
SGX Stock Analyst Report BUY MAINTAIN BUY 21.990 SAME 21.990
BUY MAINTAIN BUY 22.550 SAME 22.550
BUY MAINTAIN BUY 10.320 SAME 10.320



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