Singapore Banks - Maybank Kim Eng 2020-07-20: 2Q20 What To Expect?

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

Singapore Banks 2Q20 - What To Expect?


High provisioning, low NIMs with trading bright spot

  • DBS (SGX:D05) and UOB (SGX:U11) will be reporting 1H20 on 06 Aug and OCBC (SGX:O39) on 07 Aug.
  • Provisioning costs should see material q-o-q momentum as the brunt of regional lockdowns and economic downgrades manifest. We expect provisions to be largely cautionary. Significant drops in interest rates should drive negative pressure on NIMs, while fee income may also be impacted from weak wealth management and loan fees.
  • Trading may be a possible bright spot. As a result, OCBC has the highest likelihood of surprising on the upside, while UOB may surprise on the downside from weaker margins, we believe.
  • Separately, we will be watching for guidance on capital and liquidity and its impact on dividends going forward.



Chunky credit costs – likely mostly in GP

  • While 1Q20 credit charges increased 4x q-o-q, gross NPLs rose +7bps – pointing to provisions being mostly cautionary. In 2Q20, we expect q-o-q elevated credit charges –most may remain cautionary adjustments to macro-economic variables (MEVs) as seen by the US banks results in the past 2-weeks.
  • Lockdown driven NPLs are likely to pick up pace especially in COVID-19 frontline sectors. We will be looking for clarity on the impact from regional fiscal & monetary support schemes and potential signs of recovery from easing lockdowns in 2H20.


Weak NIMs and loan growth

  • SIBOR fell 46bps and HIBOR is down 115bps in 2Q20. In 1Q20 NIMs fell 3bps y-o-y following a smaller drop in benchmark rates. Loan pricing resilience from companies bulking up on liquidity helped too. In 2Q20, despite active lowering of funding costs and higher deposit growth (May DBU deposits +11% y-o-y), expect NIMs to see material downside. Weak loan volumes as a result of large segments of regional economies being shut due to lockdowns, may further increase negative interest income momentum.
  • UOB has the highest potential to surprise on the downside given their cautious track record of NIM management, with limited gapping activity.


Strong trading, soft fees






Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-07-20
SGX Stock Analyst Report BUY MAINTAIN BUY 22.100 SAME 22.100
HOLD MAINTAIN HOLD 9.460 SAME 9.460
BUY MAINTAIN BUY 22.420 SAME 22.420



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......