Singapore Banking Monthly - Phillip Securities 2021-04-05: Extending Their Green Shoots

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

Singapore Banking Monthly - Extending Their Green Shoots

  • Current interest rates of 0.42% are 11bps higher than the start of the year.
  • Loans fell 0.88% y-o-y in February but grew 0.46% m-o-m, the fourth consecutive month of growth.
  • SGX’s SDAV was third-highest on record but down y-o-y alongside DDAV as there was an anomalous selloff during the COVID-19 outbreak last year.
  • Maintain Overweight. Loans remain on path for recovery and interest rates are stable with a positive economic outlook. We continue to prefer OCBC (SGX:O39) for its wealth management and insurance franchises.



Interest rates ticked up in March

  • Interest rates edged higher for a second consecutive month to 0.42% in March. Year to March, they were up 11bps. Still, the rates were 53bps lower than their FY20 average. We continue to expect FY21e NIMs to come in at 1.45-1.55% for the three banks, lower than their 1.60% average in FY20.


Lending recovery extended to February

  • Loans fell 0.88% y-o-y in February but grew for the fourth consecutive month, by 0.46%. Business and consumer loans improved 0.48% and 0.42% m-o-m respectively.
  • The pace of recovery dipped from the 0.72% m-o-m gain observed in January but consumer loans grew 0.1% y-o-y in their first annual growth since April 2019.
  • Apart from the recovery in local loans, local banks should benefit from regional trade flows with their presence in North Asia and Southeast Asia, where vaccination programmes are underway to aid the economic recovery.


Preliminary SDAV for March of S$1,627mn was the third highest historically.

  • Y-o-y, SDAV (securities daily average volume) was down 26% from the S$2,193mn in March 2020 when there was a market selloff at the height of the global outbreak of COVID-19.
  • Turnover for the top 5 equity index futures shrank 32.1% y-o-y in March. Again, this could be attributed to less volatility than a year ago, which dampened demand for derivatives as a hedging tool.
  • Singapore Exchange (SGX)’s income could slide 10% y-o-y in 3Q21 as a result of base effects, but is expected to normalise after that.

Investment Action


Maintain Overweight

  • Despite the run-up in their share prices in 1Q21, we continue to see upside for banks. They had traded above 1.4x P/B before in the past five years and are currently trading close to or below our P/B targets of 1.17-1.31x. Our targets are supported by improving ROEs as allowances ease off in FY21e.
  • The banks have also emerged from FY20 with stronger capital ratios of 13.9-15.2%. These are higher than their ideal operating range of 12.5-13.5%, which banks hope to achieve so as to not negatively impact ROEs from holding excess capital. This should support a resumption of pre-COVID dividend payouts once the MAS lifts restrictions.
  • For sector exposure, we continue to prefer OCBC (SGX:O39). OCBC is expected to book faster earnings growth from its wealth-management and insurance franchises as market conditions improve.
  • See PDF report attached below for complete analysis and data tables.
  • See also:





Tay Wee Kuang Phillip Securities Research | https://www.stocksbnb.com/ 2021-04-05
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 29.500 SAME 29.500
BUY MAINTAIN BUY 13.650 SAME 13.650
ACCUMULATE MAINTAIN ACCUMULATE 28.700 SAME 28.700



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