DBS GROUP HOLDINGS LTD (SGX:D05)
OVERSEA-CHINESE BANKING CORP (SGX:O39)
UNITED OVERSEAS BANK LTD (SGX:U11)
Singapore Banks - What To Expect For 1Q21?
Improved earnings momentum, lower provisions
- DBS (SGX:D05) will be reporting its 1Q21 trading update on 30 Apr, followed by UOB (SGX:U11) on 06 May and OCBC (SGX:O39) on 07 May.
- We expect to see signs of strengthening earnings momentum from sequential improvements in NIM, loan growth, wealth and trading income. Provisioning growth should continue to retreat given a better than expected asset quality environment, but write-backs are unlikely in a backdrop of regional uncertainty.
- We think UOB may surprise on the upside from better NIMs and lower credit costs.
- Top pick OCBC on North Asia growth and wealth management upside.
Sequential operating improvements
- Slower deposit growth, a steepening yield curve and a pick-up in lending should mark the bottoming of NIMs in 1Q21 with the potential for q-o-q improvements. Lockdowns in various stages may dampen loan growth from ASEAN, but North Asia should drive an increasing contribution with COVID-19 recovery underway.
- We expect to see some lending market share gains in Singapore, particularly from as mortgages and financial institutions.
- Non-interest income is likely to be mixed. Wealth management and loan related fees should see sequential growth. Conducive market conditions should support trading income, but these are unlikely to be comparable to the US banks, who have higher proprietary trading contributions.
- Opex may see some uptick from higher bonus provisions for 2021.
Falling provisions, but too early for write-backs
- Sector credit charges fell to 55bps in 2H20 vs 85bps in 1H20. More deceleration is likely in 1Q21; gross NPLs have remained flat around 1.57% for the past two quarters.
- New NPL formation has been relatively benign thanks to stimulus measures across the region. Nevertheless, unlike US banks in 1Q21, provision write-backs are unlikely.
- Regionally, resurging COVID-19 infections and uncertain border reopening’s should keep the sector cautious. However, given a 110% provision cover – the highest since 2015 – reserve releases towards 2H21 cannot be ruled out as more economic clarity emerges, we believe.
OCBC preferred. UOB potential to surprise
- We believe 1Q21 should establish a trend of sequential operating improvements. This could accelerate in to 2H21 as a clear path to herd immunity is established regionally. Reserve releases and loosening dividend caps are further upside catalysts.
- We believe OCBC’s wealth management and North Asia operations have the strongest potential to deliver, especially with a new CEO taking the helm.
- Improvements to UOB’s NIM in 4Q20 from better funding cost management should flow through to 1Q21, we believe. At the same time, continued stimulus support for SMEs should lower credit costs. This combination may allow it to surprise on the upside in 1Q21, we believe.
Thilan Wickramasinghe
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2021-04-20
SGX Stock
Analyst Report
29.640
SAME
29.640
12.740
SAME
12.740
26.240
SAME
26.240
