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Singapore Banking Monthly - Phillip Securities 2022-08-12: NIM Improvement Across The Board

Singapore Banking Monthly - 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 - NIM Improvement Across The Board

  • July 3M-SIBOR was up by 51bps m-o-m to 2.02%, the highest in 7 years.
  • 2Q22 results, Singapore banks’ NII rose 17% y-o-y as NIM improved by 8% with loans growth of 8%. Fee income was a drag, declining 10%. Banks raised their FY22e NIM guidance.
  • Hong Kong’s domestic loans declined 2.34% y-o-y and 0.17% m-o-m in June. Malaysia’s domestic loans growth increased 5.61% y-o-y and 0.68% m-o-m in June.
  • Maintain OVERWEIGHT. We remain positive on banks. Singapore banks' dividend yields are attractive at 5% with upside surprise due to excess capital ratios. Stable economic conditions and rising interest rates remain tailwinds for the banking sector. SGX (SGX:S68) is another beneficiary of higher interest rates. Pressure points for the banks will be higher staff costs and a nudge in general provisioning due to weaker economic assumptions.



3M-SOR and 3M-SIBOR reach new highs in July

  • Interest rates continued to increase in July. The 3M-SOR was up 64bps m-o-m to 2.47%, while the 3M-SIBOR was up 51bps m-o-m to 2.02%. It is the highest interest rates have been for the past 7 years.
  • The 3M-SOR is 103bps higher than its 2Q22 average of 1.44% and has improved by 228bps y-o-y. The 3M-SIBOR is 80bps higher than its 2Q22 average of 1.22% and has improved by 159bps y-o-y.


DBS OCBC UOB 2Q22 RESULTS HIGHLIGHTS


NII and NIM rise across the board

  • DBS (SGX:D05)’s 2Q22 earnings of S$1.82bn are in line with our estimates, and 1H22 PATMI is at 47% of our FY22e forecast. 2Q22 dividend is up 9% y-o-y at S$0.36, above pre-pandemic 33 cents. NII grew 17% y-o-y to S$2.5bn due to NIM increase of 13bps y-o-y to 1.53% and continued loan growth of 7% y-o-y. NIM improvement was mainly due to the rising interest rates as the impact of interest rate hikes was more fully felt. DBS's management has lifted NIM guidance to 1.70 -1.75% for FY22e (from 1.58-1.60%).
  • OCBC (SGX:O39)’s 2Q22 earnings of S$1.48bn were in line from higher net interest income, non-interest income and lower allowances. 1H22 PATMI is at 47% of our FY22e forecast. 2Q22 dividend rose 12% y-o-y to S$0.28. NII grew 16% y-o-y led by loan growth of 8% y-o-y and NIM improvement of 13bps y-o-y to 1.71%. NIM expansion was mainly due to asset yields outpacing higher funding costs amid a rapidly rising interest rate environment. OCBC has guided for NIM of 1.70% (from 1.5 - 1.55%) for FY22e.
  • UOB (SGX:U11)’s 2Q22 earnings of S$1,113mil were in line with our estimates due to higher net interest margin and healthy net interest income growth. 1H22 PATMI is 43% of our FY22e forecast. NII grew 18% y-o-y, led by continued loans growth of 8% y-o-y, while NIM improved 11bps y-o-y to 1.67%. Loan growth q-o-q was mainly from term and housing loans, while y-o-y loan growth was broad-based across geographies as business regained momentum. UOB has lowered its guidance to mid-single digit loan growth for FY22e (previously mid to high single-digit).


Fee income fell in 2Q22 due to wealth management

  • DBS’ 2Q22 fee income fell 12% y-o-y mainly due to weaker market sentiment affecting wealth management and investment banking. WM fees fell 21% y-o-y to S$337mil as market conditions further weakened during the quarter. Investment banking fees fell 54% y-o-y to S$30mil alongside a slowdown in capital market activities. Nonetheless, card fees improved 23% y-o-y to S$203mil as borders start to reopen and spending increased, while loan-related fees moderated from record levels.
  • OCBC’s 2Q22 fee income declined 15% y-o-y to S$477mil mainly due to lower wealth management, brokerage, and investment banking fees, in line with weaker investor sentiment globally. Nonetheless, loan and trade-related fees increased on the back of higher lending and trade volumes, and credit card fees were also higher, in line with the broader reopening of economies and resumption of activities.
  • UOB’s 2Q22 fee and commission income fell 2% y-o-y, as higher loan-related and credit card fees were moderated by lower WM fees due to more subdued market sentiment. Fees were down 1% q-o-q. Key concern was new NPA formation of S$661mil mainly due to a major but non-systemic corporate Chinese account.


Hong Kong loans growth dips while Malaysia's loans growth rises in June

  • Hong Kong’s domestic loans growth declined 2.34% y-o-y and 0.17% m-o-m in June. The y-o-y decline in loans growth for June was the first decline since Jan 2022 and the m-o-m loans growth decline of 0.17% was down 63bps from May’s loans growth of 0.46%.
  • Malaysia’s domestic loans growth was 5.61% y-o-y and 0.68% m-o-m in June. The increase y-o-y in June was the highest since Mar 2019 and an increase of 62bps from May’s loans growth of 4.99%, while the increase m-o-m was an increase of 40bps from May’s loans growth of 0.28%.


Volatility fell as community cases begin to fall

  • Preliminary SDAV for July dipped 25% y-o-y to $886mil, as market sentiment remained subdued due to macroeconomic factors. The VIX averaged 25.0 in July, down from 28.3 in the previous month.
  • The top five equity index futures turnover saw a dip of 9.4% y-o-y in July to 13.74mil contracts, mainly due to the lower trading volumes of its FTSE China A50 Index Futures and MSCI Singapore Index Futures . Notably, the Nikkei 225 Index Futures decreased 36.8% m-o-m to 1.11mil and the FTSE China A50 Index Futures decreased 17.0% m-o-m to 7.83mil.

Investment Action  






Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-08-12
SGX Stock Analyst Report BUY MAINTAIN BUY 41.600 SAME 41.600
BUY MAINTAIN BUY 14.220 SAME 14.220
BUY MAINTAIN BUY 35.700 SAME 35.700



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