Singapore Banks - UOB Kay Hian 2020-10-07: Optimal Mix Of Less Moratorium Loans But High Loan Loss Coverage

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

Singapore Banks - Optimal Mix Of Less Moratorium Loans But High Loan Loss Coverage

  • DBS (SGX:D05), OCBC (SGX:O39) and UOB (SGX:U11) have varying exposure to moratorium loans due to differences in geographical footprint. Within Singapore, moratorium loans account for only 9% of total loans. DBS has the least exposure to moratorium loans at 4.8% of total loans, followed by OCBC’s 10.1% and UOB’s 15.1%. The latter two have a larger exposure to moratorium loans due to their bigger presence in regional markets.
  • Preferred BUYs are DBS (Target: S$23.50) and OCBC (Target: S$11.48) as they have less exposure to moratorium loans but higher loan loss coverage.
  • Maintain OVERWEIGHT.



DBS and OCBC have less moratorium loans.

  • Banks’ exposures to moratorium loans range from 4.8% of total loans for DBS (SGX:D05) to 10.1% for OCBC (SGX:O39) and 15.1% for UOB (SGX:U11). The variance in exposures to moratorium loans is caused by a difference in business mix (moratorium loans are largely SME loans and residential mortgages) and geographical footprint.
  • We estimate that moratorium loans account for 65% and 30% of total loans for Malaysia and Thailand respectively due to automatic inclusion, compared to 9% for Singapore.
  • DBS has the least exposure to moratorium loans at 4.8% of total loans due to its traditional focus on large corporations operating in Singapore and Hong Kong. Conversely, UOB has the most exposure to moratorium loans due to its strength in SME banking and larger presence in Malaysia and Thailand.


Moratorium loans largely backed by collaterals.

  • Moratoriums are largely granted to secured loans, such as SME loans and residential mortgages, which account for more than 90% of moratorium loans. Outstanding balances for moratorium loans should start to taper off once moratorium expires in Sep 20 for Malaysia and Dec 20 for Singapore. UOB expects 10-15% of moratorium loans to become NPLs.


DBS and OCBC set aside more provisions.

  • DBS and OCBC have set aside more provisions to prepare for moratorium withdrawal. During 1H20, DBS and OCBC incurred credit costs of 103.9bp and 104.9bp respectively, compared to 49.2bp for UOB (68.3bp if we include transfer of S$260m from retained earnings to regulatory loss allowance reserves in 1Q20).
  • DBS and OCBC also have higher loan loss coverage of 105.4% and 100.8% respectively, compared to 90% for UOB.


Banks have maintained guidance for credit costs.

  • Guidance for cumulative credit costs during 2020-21 were maintained at 80-130bp (S$3b-5b) for DBS, 100-130bp (S$2.5b-3.5b) for OCBC and 100-130bp (S$2.5b-3.5b) for UOB.


Extending support to SMEs and individuals facing cash flow difficulties.

  • The Monetary Authority of Singapore (MAS) has announced measures to support SMEs and individuals who need more time to resume principal repayments:
    • Helping SMEs. SMEs in tier-1 and tier-2 sectors can defer 80% of their principal repayments on secured loans till Jun 21. Tier-1 and tier-2 sectors include aviation and aerospace, tourism, hospitality, conventions and exhibitions, built environment, licensed food shops and food stalls, qualifying retail outlets, arts and entertainment, land transport, and marine and offshore (similar to the Job Support Scheme). SMEs in other sectors may opt to do the same up to Mar 21. This relief is available to all SMEs that are in good standing with their banks and not more than 30 days past due on all their loan payments (regardless of whether the SME has been granted principal moratorium previously).
    • Helping individuals. Individuals with residential, commercial and industrial property loans can apply to their bank to reduce their monthly instalment payments by 40% for a period of up to 9 months. They must provide proof of income impact of at least 25% and are not more than 90 days past due for their property loan payments. Individuals with renovation and student loans can apply to their bank to extend their loan tenures by up to three years, which will reduce their monthly instalments. They must provide proof of income impact and are not more than 90 days past due for their renovation or student loan payments (regardless of whether the individual has been granted payment reliefs previously).
  • The measures avoid the cliff effect of having all moratoriums expiring on the same month. For existing SME loans under moratorium, their loan moratoriums will expire in Mar 21 if the extension is approved. For tier-1 and tier-2 SMEs, who are more impacted by the COVID-19 pandemic, they will be given more time and their loan moratoriums will expire in Jun 21.
  • Banks do not expect a significant number of borrowers to seek further relief.

We are at turning point.






Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-10-07
SGX Stock Analyst Report BUY MAINTAIN BUY 22.900 SAME 22.900
BUY MAINTAIN BUY 10.820 SAME 10.820
NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000



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