Singapore Banks - Maybank Research 2022-10-12: What To Expect For 3Q22 Earnings

DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)

Singapore Banks - What To Expect For 3Q22 Earnings

UOB is set to report 3Q22 earnings on 28 Oct, DBS on 03 Nov and OCBC on 04 Nov 2022 – See Earnings calendar of SGX listed companies.

We expect the NII (net interest income) tailwinds seen last quarter to intensify with accelerating NIM (net interest margin) expansion following aggressive Fed rate hikes. NOII (non-interest income) is likely to remain muted, although wealth management has likely bottomed.

A critical risk to watch out for is deteriorating asset quality from North Asia, which could drive credit charge guidance higher. Contrastingly, asset quality in Singapore and ASEAN should be benign.
Overall, we expect earnings momentum for the banking sector to remain positive.
DBS (SGX:D05) is our top pick given lower funding cost advantage, strong provisions and potential capital release.

2Q22 sector NIM expansion accelerated to +12bps q-o-q compared to just +2bps in 1Q. With two 75bps Fed hikes within 3Q (plus another 75bps in the tail end of June), we expect NIM expansion momentum to accelerate.
Of course, higher interest rates are likely to tighten spreads as cost of funding increases. We note in 1H22, 1%-4% of CASA shifted to fixed deposits. Nevertheless, we expect asset yields to have significantly outpaced funding cost increases.
Loans expanded 7.6% y-o-y for the sector in 1H22. The pace of growth may likely moderate, especially in manufacturing, SMEs, private banking related lending as macro conditions slow. Mortgages should continue to remain supported from drawdowns on past launches.
While wealth management fees likely bottomed in 2Q, we expect sequential growth to be muted amidst market volatility. AUM growth should be positive given Singapore’s safe haven status. Credit cards could be a bright spot from re-opening.
Recap of the updates on DBS, OCBC and UOB's 2Q22 earnings:

North Asia NPLs (non-performing loans) increased 8% to 191% q-o-q in 2Q. While some of this were one offs, continuing stress in the Chinese property sector and potential contagion impacts landing on balance sheets cannot be ignored.
In addition, continued COVID lockdowns adds further risk of stress. Potentially renewed guidance for higher credit charges need to be watched.
At the same time, continued weakness in markets could result in downside surprises to trading and investment income. Wage inflation is likely to keep operating expenses growth momentum positive, although at a slower pace than 2Q where seasonal adjustments take place. However, stronger NII growth should keep cost-to-income ratios in check.
While we do expect positive dividend surprise in 2022E, given large capital buffers, this is likely only to happen in 4Q22. See DBS's Dividend History, OCBC's Dividend History, and UOB's Dividend History.

Thilan Wickramasinghe Maybank Research | https://www.maybank-ke.com.sg/ 2022-10-12

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