Singapore Banking Monthly - Phillip Securities 2022-11-11: NIM & NII Surge Across The Board


Singapore Banking Monthly - NIM & NII Surge Across The Board

  • October 3M-SORA/3M-SIBOR was up by 44bps/78bps m-o-m to 2.28%/3.63%, the highest m-o-m increase since 1998.
  • In the 3Q22 results, Singapore banks’ NII rose 42% y-o-y as NIM improved by 47bps with loans growth of 6%. Fee income was a drag, declining 14%. Banks raised their FY22e NIM guidance.
  • Singapore domestic loans grew 4.38% y-o-y in September, tracking our estimates, while Hong Kong’s domestic loans declined 1.81% y-o-y in September.
  • Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive at 5% with upside surprise due to excess capital ratios. We expect bank NIM to rise another 34bps in 4Q22. SGX is another beneficiary of higher interest rates.

3M-SOR and 3M-SIBOR continued to climb in October

  • Interest rates continued to increase in October. The 3M-SORA was up 44bps m-o-m to 2.28%, while the 3M-SIBOR was up 78bps m-o-m to 3.63%. The SORA m-o-m increase was the highest on record while the SIBOR m-o-m increase was the highest since 1998.
  • The 3M-SORA is 83bps higher than its 3Q22 average of 1.45% and has improved by 213bps y-o-y. The 3M-SIBOR is 115bps higher than its 3Q22 average of 2.48% and has improved by 320bps y-o-y.

Singapore Banks' 3Q22 Results Highlights

1. NII and NIM surge

  • DBS (SGX:D05)’s 3Q22 earnings of S$2.24bn were in line with our estimates, and 9M22 PATMI was at 77% of our FY22e forecast. 3Q22 DPS was up 9% y-o-y at 36 cents. NII surged 44% y-o-y to S$3bn on NIM expansion of 47bps to 1.90% and loan growth of 6% 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 maintained NIM guidance of 1.75% for FY22e and targets to reach 2% by 4Q22 .
  • OCBC (SGX:O39)’s 3Q22 earnings of S$1.61bn were in line from higher net interest margin and net interest income offset by lower fee income. 9M22 PATMI was 73% of our FY22e forecast. NII grew 44% y-o-y underpinned by loan growth of 6% y-o-y and NIM surging 54bps y-o-y to 2.06%. NIM expansion was mainly due to asset yields outpacing higher funding costs amid a rapidly rising interest rate environment.
    • OCBC has guided for similar mid-single digit loan growth and NIM of 1.80-1.90% (from 1.70%) for FY22e.
  • UOB (SGX:U11)’s 3Q22 earnings of S$1,403mil were in line with our estimates due to higher net interest margin (NIM) and healthy net interest income (NII) growth. 9M22 PATMI was 72% of our FY22e forecast. NII was up 39% y-o-y from a NIM increase of 40bps y-o-y to 1.95% and loan growth of 6% y-o-y.
    • UOB guided NIM to continue to expand each quarter and to reach an exit NIM of 2.5% to 3.0% by the end of 2022. We estimate 4Q22 NII to jump 65% y-o-y. Management guided for ROE of 13% in FY23 and 14% for FY24 from this year’s 11%.

2. Fee income continued to decline in 3Q22

  • DBS's fee income fell 13% y-o-y mainly due to weaker market sentiment affecting wealth management and investment banking which more than offset increases in card and loan-related fees. WM fees fell 30% y-o-y to S$323mil and investment banking fees fell by 38% y-o-y to S$25mil. Nonetheless, card fees improved 24% y-o-y to S$223mil as borders started to reopen and spending increased, while loan-related fees increased 15% to S$122mil.
  • DBS’s fee income declined 20% y-o-y mainly due to a drop in wealth management fees as customer activities were subdued amid risk-off investment sentiments globally. The decline was partly offset by growth in other fee segments including credit card, and loan and trade-related fees. A key concern was an increase in Greater China NPLs by 18% q-o-q mainly due to one Singapore based customer on a property investment.
  • UOB’s 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. A key concern was new NPA formation of S$661mil mainly due to a major but non-systemic corporate Chinese account.

Singapore loans growth tracking forecast

  • Overall loans to Singapore residents – which captured lending in all currencies to residents in Singapore – rose by 4.38% y-o-y in September to S$839bn, tracking our estimate of mid-single digit growth for 2022 as economies in ASEAN began to recover from the pandemic lockdowns and borders started to reopen.
  • Business loans grew by 4.85% y-o-y in September, as business loans dipped by 0.96% for the month. Loans to the building and construction segment, the single largest business segment grew 4.0% y-o-y to S$173.1bn, while loans to the manufacturing segment grew 12.4% y-o-y in September to S$28.3bn.
  • Consumer loans were up 3.6% y-o-y in September to S$316.9bn, aided by strong loan demand in the housing segment. Housing loans, which make up ~70% of consumer lending, grew 4.8% y-o-y in September to S$221.3bn for the month.
  • Total deposits and balances – which captured deposits in all currencies to non-bank customers – grew by 11.1% y-o-y in September to S$1,744bn. The Current Account and Savings Account (CASA) proportion sipped slightly to 21.4% of total deposits or S$374bn as there was a move towards FDs due to the high interest rate environment.

Hong Kong loans growth dipped in September

  • Hong Kong’s domestic loans growth declined 1.81% y-o-y and 0.47% m-o-m in September. The y-o-y decline in loans growth for September was higher than the decline of 0.97% in August, while the m-o-m loans growth decline of 0.47% was 10bps lower than August’s loans growth decline of 0.57%.

Volatility rose as market sentiment turned

  • SGX (SGX:S68)'s preliminary SDAV for October dipped 2% y-o-y to $1,137mil (Figure 6), as market sentiment remained subdued due to macroeconomic factors. The VIX averaged 30.0 in October, up from 27.3 in the previous month, and the DDAV rose 2% y-o-y to 1.05mil in September, up from 0.92mil in August.
  • The top five equity index futures turnover saw a riseof 14.7% y-o-y in October to 15.15mil contracts, mainly due to the higher trading volumes of its MSCI Singapore Index Futures and FTSE Taiwan Index Futures . Notably, the FTSE Taiwan Index Futures grew 11.8% m-o-m to 1.58mil and the Nikkei 225 Index Futures dipped 22.4% m-o-m to 1.17mil.

Investment Action – Maintain OVERWEIGHT.

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-11-11
SGX Stock Analyst Report BUY MAINTAIN BUY 41.600 SAME 41.600