SINGAPORE (July 6): DBS Group Research is downgrading its recommendations for both Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB) – and slashing their target prices by up to 20%.
This comes after the government yesterday evening announced a couple of property cooling measures that will kick in with effect from today.
“Previous property cooling measures caused loan growth to half from a high of 16% after a year,” says lead analyst Lim Sue Lin in a Thursday report.
“Loan growth sentiment will be dampened from here as this is currently driven largely by property development companies,” she adds.
DBS is cutting OCBC and UOB to “hold”, from “buy” previously.
The research house is slashing the target price for OCBC to $12.20, from $15.30 previously. Meanwhile, it is dropping the target price for UOB to $28.30, from $33.20 previously.
“The property cooling measures would likely take a hit on UOB, which is most exposed to property-related lending,” says Lim.
“Amongst the three banks, UOB has the highest exposure to housing loans, at 27.6% of its total loans – hence, UOB’s share price may be impacted more negatively in the short term,” says RHB Research analyst Leng Seng Choon in a Thursday report.
“Whilst banks’ share prices are likely to weaken as a consequence of these property measures, the longer term view remains positive,” he adds.
RHB is keeping its “neutral” stance on the Singapore banks sector.
The government on Thursday announced that stamp duty for Singaporeans and permanent residents buying their second or more properties will see increases of 5 percentage points in additional buyer’s stamp duty (ABSD).
Foreigners would now have to pay stamp duty of 20% versus 15% previously, while the amount goes up by 10 percentage points for "entities".
An additional 5% stamp duty will be introduced for developers buying residential properties for development.
The loan-to-value (LTV) limits will also be tightened by 5 percentage points for all housing loans issued by financial institutions.
See: Singapore raises ABSD, tightens LTV after strong property price gains
“The higher additional buyer’s stamp duty (ABSD) requirements should lower investment demand for residential property, as the increase is mainly targeted at buyers of second and subsequent properties,” says Leng. “The lower loan-to-value (LTV) limits means buyers get reduced financing for their property purchases.”
“The impact on banks’ housing loan growth over the next few quarters is likely to be muted, as most of these housing loans would be drawdown of loans already approved earlier,” he adds.
However, DBS’s Lim believes there will be darker clouds for the banks on the horizon.
“We expect 2Q18 earnings to remain positive, supported by sustained NIM uptrends and low credit costs. But 2H18 might see the tide turn, especially in loan growth,” Lim says.
As at 1.22pm, shares of OCBC are trading 3.0% lower at $11.16, while shares of UOB are trading 3.4% down at $26.18.
