Singapore Banks - Maybank Kim Eng 2020-04-24: 1Q20 What To Expect

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

Singapore Banks - 1Q20 What To Expect

DBS (SGX:D05) will be reporting 1Q20 on 30 April followed by UOB (SGX:U11) on 06 May and OCBC (SGX:O39) 08 May. (see also 2020 March Quarter Earnings Schedule for STI Constituents)
Credit charges should see a notable acceleration, but a brunt of the charges may likely come from 2Q20 onwards reflecting the full effect of lockdowns in Singapore and the region.
We expect loans to see healthy growth, partly as customers increased liquidity reserves to face escalating Covid-19 uncertainties, but NIMs should see continued contraction as a result of weaker interest rates.

Non-interest income may see growth in trading related segments, but wealth management, credit card fees may likely be softer.
This is the first time the banks will be reporting abridged financials following SGX moving to half-yearly reporting. So there will be additional focus on the detail and quality of guidance under this standard.
OCBC (SGX:O39) is our preferred pick.

In 4Q19, credit charges increased 86% q-o-q – the largest jump since the GFC. We expect 1Q20 momentum to further accelerate, especially contributed by specific credits in North Asia – which saw pandemic related shutdowns – together with increased cautionary allowances. Displays of sector specific distress may be limited.
A brunt of sectoral impact, together with contagion from oil & gas sector volatility, may likely arise from 2Q20. Guidance on stress testing, impact of record government stimulus and specific sectoral distress will be key focus areas during this reporting season.

While NIMs held relatively steady in 4Q19, supported by increased CASA and less volatile interest rates, 1Q20 should see notable contraction – with average SIBOR 21bps q-o-q lower.
System loans saw strong growth in February (+8.2% y-o-y), likely as companies bulked up liquidity ahead of the worsening pandemic. As a result, we expect overall loan expansion to remain resilient, although this should start to lose momentum in 2Q20.

2019 saw strong contribution from non-interest income with 4Q19 increasing 16% y-o-y led by wealth management and trading. Given contraction in interest rates in 1Q20, trading income should see some resilience, but mark-to-market losses in equity holdings need to be watched.
Fee income may see pressure – particularly wealth management – as clients pull back from higher risk, speculative products.
See

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-04-24

SGX Stock Analyst Report BUY MAINTAIN BUY 21.990 SAME 21.990

BUY MAINTAIN BUY 10.320 SAME 10.320

BUY MAINTAIN BUY 22.550 SAME 22.550