Singapore Banks - DBS Research 2020-05-08: Focus On Asset Quality Ahead

Singapore Banks - DBS Research | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)

Singapore Banks - Focus On Asset Quality Ahead

  • Singapore banks' 1Q20 net profits declined, weighed down by provisions but buffered by lower operating expenses.
  • Higher credit costs expected through FY21F.
  • Net interest income to fall on lower NIM amidst some loan growth.
  • Remain NEUTRAL on sector; OCBC (SGX:O39) and UOB (SGX:U11) to declare interim dividends with 2Q20 results.



Net profit declines across banks.

  • Singapore banks saw broad-based net profit declines, weighed down by higher provisions, but buffered by lower operating expenses and higher non-interest income (with the exception of OCBC which saw weak insurance performance).
  • The banks’ net profits are as follows:
  • See detailed q-o-q and y-o-y comparison based on recent release of 1Q20 Singapore banks results in attached PDF report.


Higher credit costs expected through FY21F.

  • DBS/ OCBC/ UOB guided for 80-130bps (S$3-5bn), 100-130bps, and 100-120bps of credit costs cumulatively over next two years respectively. The split between credit costs across two years remains uncertain as it would depend on the speed of economic recovery post loosening of Circuit Breaker in Singapore and other movement control measures across different countries.
  • We are pencilling in a larger proportion of credit costs to be taken for FY20F in our forecasts and expect further provisions arising from the oil and gas sector.


Net interest income to decline on lower net interest margin (NIM) amidst some loan growth.

  • DBS/ OCBC/ UOB’s NIM declined 0bps/ 1bps/ 5bps q-o-q. DBS’s NIM was buffered by LIBOR interbank rates in March which held resilient due to stressed funding market conditions, while OCBC benefitted from higher USD loans repricing due to the switch in cost of funds benchmark.
  • UOB’s NIM decline was largely attributed to lower interest rates, as well as lower loan margins due to UOB’s active strategy to lend to certain large corporates and top-tier customers mainly in Singapore and Hong Kong.
  • We believe NIM pressures will accelerate into remaining quarters in FY20F, pricing off lower benchmark rates.


Remain neutral on sector; OCBC and UOB to declare interim dividends with 2Q20 results.






Rui Wen LIM DBS Group Research | https://www.dbsvickers.com/ 2020-05-08
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000
HOLD MAINTAIN HOLD 7.900 SAME 7.900
HOLD MAINTAIN HOLD 17.500 SAME 17.500



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