Singapore Banks - RHB Invest 2020-10-06: Navigating A Soft Landing For Debt Moratorium

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

Singapore Banks - Navigating A Soft Landing For Debt Moratorium

  • Maintain NEUTRAL on Singapore Banking sector.
  • Yesterday’s announcement of an extension of relief measures for individuals and small & medium enterprises (SMEs) impacted by COVID-19 does not surprise. While this will likely mitigate the rise in GILs in 2020, we believe Singapore banks will continue to set aside pre-emptive provisions this year.
  • Still, the potential rebound in 2021 earnings is now being clouded by expectations that NIM could be under pressure longer following the US Federal Reserve’s policy framework shift in Aug 2020.


Extending debt moratorium.

  • The Monetary Authority of Singapore (MAS) together with the Association of Banks in Singapore and the Finance Houses Association of Singapore jointly announced the extension of Singapore’s debt moratorium programme beyond 31 Dec 2020.
  • With the pandemic still exerting a substantial toll on the economy, individuals and businesses will continue to experience cash flow pressures into early 2021. The support measures will also be available to borrowers previously not under any payment deferral but are now facing cash flow challenges.


SMEs can defer 80% of principal and individuals 60%.

  • Broadly, the extension of the debt moratorium comes with some refinements compared to the current relief programmes. Notably, SME borrowers will only be allowed to defer 80% of principal payments. They are required to pay the remaining 20% of principal and interest on the loan. SMEs are not required to demonstrate any impact from COVID-19 as long as loan repayments are no more than 30 days past due. SMEs that are directly impacted by COVID-19 will get a further 6-month reprieve (to Jun 2021), while other SMEs will be given a shorter moratorium of three months to Mar 2021.
  • Individuals can extend the moratorium on mortgages for another nine months but not exceeding 31 Dec 2021. However, only 60% of the monthly instalment (principal and interest) can be deferred. Borrowers have to prove income impact of at least 25%.


Prevents cliff effect.

  • We believe the further postponement of loan repayments, although not deferment of 100% of monthly instalments, will provide the much needed breathing space for affected borrowers to manage their financial positions. Assuming no stage transfers under the Expected Credit Loss model, this will mitigate risk of a sudden spike in NPLs come end-2020.
  • As at end-Jun 2020, Singapore banks’ NPL ratios remained low at 1.5% for DBS (SGX:D05), and 1.6% for OCBC (SGX:O39) and UOB (SGX:U11). Furthermore, loans under moratorium are manageable at 5% of total loans for DBS, 10% for OCBC and 16% for UOB.
  • OCBC and UOB have higher portions of loans under moratorium due to their operations in Malaysia and Thailand.

Provisions will be front-loaded.






Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-10-06
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 18.500 SAME 18.500
NEUTRAL MAINTAIN NEUTRAL 8.700 SAME 8.700
NEUTRAL MAINTAIN NEUTRAL 18.800 SAME 18.800



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