Ahead of Singapore banks’ FY2022 ended December results in February, CGS-CIMB Research analysts Andrea Choong and Lim Siew Khee are maintaining “neutral” on the sector here.
They warn of tapering net interest margin (NIM) expansion in 4QFY2022, with United Overseas Bank (UOB) likely to lead the pack owing to its Citi acquisition. “We expect Singapore banks to report a rather flattish q-o-q set of earnings for 4QFY2022 as risk-off sentiment remains amid slowing global growth and interest rate uncertainties.”
While NIMs are likely to rise further, the q-o-q expansion could “materially slow” as higher funding costs are being priced in, say Choong and Lim, compared to a 30 basis points (bps) q-o-q increase in 3QFY2022 ended September.
In particular, the risk-off sentiment in wealth management activities persisted well into 4QFY2022, say Choong and Lim, and this could weigh down overall non-interest income (NII).
“Asset quality likely stayed benign in 4QFY2022, they add, equating to minimal specific provisions (SPs), but we highlight the likelihood of higher total impairments as general provisions (GPs) are buffed up from topping up collateral values of existing non-performing loans (NPLs) or revising model macroeconomic variables (MEV),” they add.
DBS
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In a Jan 24 note, Choong and Lim are recommending investors “hold” DBS Group, with a target price of $36.50. The bank is poised for a special dividend per share (DPS) payout, they add, with a likely net profit of $2.2 billion (down 1% q-o-q, up 60% y-o-y) for 4QFY2022.
DBS will report its FY2022 results on Feb 13.
Loan growth was likely sequentially slower given some headwinds in China, say the analysts. “NIM expansion likely continued as exposures got further repriced, though the q-o-q expansion likely halved as its deposit beta increased in line with the interest rate hikes; we estimate 15bps expansion in 4QFY2022.”
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As a whole, fee income likely remained weak on the back of soft wealth management flows and seasonally lower business activity, say Choong and Lim, but stronger treasury income is likely to offset some of the impact.
With asset quality likely holding steady in 4QFY2022, credit costs should consequently stay low with SPs in the single-digit range. “With capital levels staying robust, we believe it reasonable to expect a special dividend for 4QFY2022.”
In all, CGS-CIMB expects DBS to pay out 45 cents DPS in 4QFY2022, compared to 36 cents the year prior, as well as a hike in FY2023’s ordinary dividends.
OCBC
Meanwhile, Choong and Lim are recommending “add” on Oversea-Chinese Banking Corporation (OCBC) with a target price of $13.70.
OCBC will report its FY2022 results on Feb 24.
OCBC’s robust common equity tier-1 (CET-1) of 14% remains a key advantage, they add, whether for mergers and acquisitions or to cushion against asset quality deterioration.
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“We expect OCBC to report $1.63 billion net profit for 4QFY2022 (up 2% q-o-q, up 68% y-o-y). We believe loan growth was soft in 4QFY2022 as corporates put investments on hold pending clearer market certainty and China reopening.”
Absolute NIMs likely rose albeit at a slower pace, say Choong and Lim. They estimate 19bps NIM expansion in 4QFY2022.
On non-II, risk-off sentiment continues to weigh on wealth flows, they add. That said, weaker asset valuations likely dragged non-II.
They expect 32 cents DPS for 4QFY2022, up from 28 cents the year prior.
UOB
Finally, Choong and Lim are recommending investors “add” UOB with a target price of $34.80.
“We believe write-backs of management overlays would be unlikely until Covid-19 truly blows over. The credit quality of UOB’s portfolio of loans under moratorium remains healthy. Asset quality concerns from its SME and ASEAN portfolio have been well contained, in our view.”
Adjusting to remove one-off integration and stamp duty costs for the integration of Citi’s retail franchise, CGS-CIMB expects UOB to report $1.38 billion net profit for 4QFY2022 (down 2% q-o-q, up 35% y-o-y).
UOB will report its results on Feb 23.
As with peers, NIM expansion from existing operations likely continued, write the analysts, though they estimate this more or less halved q-o-q from 28bps in 3QFY2022.
That said, UOB likely benefited from the integration of Citi’s retail franchise in 4QFY2022 to the tune of 10bps given the latter’s strength in unsecured retail products, they add. “Overall, we estimate NIMs rose 24bps in 4QFY2022.”
UOB could report higher credit costs for 4QFY2022 as it updates collateral values on existing NPLs, say Choong and Lim. “UOB’s 50% dividend payout ratio translates into 90 cents DPS in 4QFY2022, up from 60 cents the year prior.”
As at 4pm, shares in DBS are trading 44 cents lower, or 1.22% down, at $35.53; while shares in OCBC are trading 4 cents lower, or 0.31% down, at $12.96; and shares in UOB are trading 19 cents lower, or 0.63% down, at $30.
