Singapore Banks - Maybank Kim Eng 2020-10-16: What To Expect For 3Q20

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

Singapore Banks - What To Expect For 3Q20

Less bad, but not great

• UOB (SGX:U11) will be reporting its 3Q20 trading update on 04 Nov, followed by DBS (SGX:D05) and OCBC (SGX:O39) on 05 Nov.
• We expect provisioning costs – while remaining high – to see q-o-q deceleration. NPLs may see some upward movement following 1H20 lockdowns. Fees should see positive momentum led by improving wealth management volumes and credit card spending. Trading income may also see buoyancy.
• NIMs may remain under pressure, although we expect loan growth to remain positive. We will be watching out for Management guidance on moratorium trends as well as risks of dividend caps extending to 2021E.
• Stronger fees and lower credit charges may position DBS with the highest potential of surprising on the upside, while UOB with the least.

Slower credit charge momentum

• Credit charges in 2Q20 were almost flat q-o-q for the sector, although y-o-y it has 5x higher. Largely this was driven by front-loaded cautionary provisioning from adjustments to macro-economic variables (MEV) and management overlays.
• While we expect an element of this to remain, given improved economic activity in 3Q, it should be sequentially lower.
• The biggest unknown delta may be specific provisions as some credits (especially in frontline COVID-19 sectors) get downgraded. However, ongoing loan moratoriums and government support schemes may delay and offset some of these moves, we believe.

Inflection in non-interest income

• Rising economic activity and branch openings post the 1H lockdowns should translate in to positive momentum in wealth management fees as well as credit card spending, we believe. Stronger market conditions in 3Q should also be supportive of trading income, although these may be several notches below growth level seen by US banks reporting so far.

Weak NIMs, loans and flat CIRs

• SIBOR fell -15bps during 3Q, which is less than the -46bps in 2Q. While the sector has been aggressively shifting its funding mix towards a low cost CASA bias, expect NIM pressures to remain as loans continue to price downwards.
• On the other hand, loan growth should remain positive supported by regional lending – especially North Asia and through participation in government programs. We expect cost to income ratios to remain flat q-o-q, as weaker revenues offset any savings from government wage support schemes.
• Refer to Fig7 in PDF report attached below forDBS, OCBC and UOB's 3Q20 earning forecasts.
• See also
  • DBS Share Price, DBS Target Price, DBS Dividend History.
  • OCBC Share Price, OCBC Target Price, OCBC Dividend History.
  • UOB Share Price, UOB Target Price, UOB Dividend History.

• See also recent SGX market update: Singapore Banks Attract Net Institutional Inflows in Early 4Q20.

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-10-16

SGX Stock Analyst Report BUY MAINTAIN BUY 22.900 SAME 22.900

HOLD MAINTAIN HOLD 9.060 SAME 9.060

HOLD MAINTAIN HOLD 20.790 SAME 20.790