What about HSBC and Standard Chartered, two global banks with a strong Asian presence? The charts of their performances over the past 10 years speak for themselves. (see Chart 1)
The US Federal Reserve rate hike cycle is likely to peak somewhere in the first half of 2023, bringing along with it growth in net interest income (NII) of local banks, probably making them the best proxy to future Asian growth.
According to analysts, DBS Group Holdings is likely to remain the standout bank. “DBS has been one of the best turnaround cases in the region in the last decade. Most of the improvements are visible on the pre-provisioning operating profit line, including better asset/liability management, lower fees volatility, treasury, wealth management, digital and branding,” says JP Morgan, adding that DBS could become part of multi-decade portfolios of investors.
CLSA points out that local banks including Oversea-Chinese Banking Corp (OCBC) and United Overseas Bank (UOB) have done very well this year: “1QFY2021 to 1QFY2022 net profit after tax growth was largely driven by lower credit costs from early-stage pandemic over-provisioning. Now, the past two quarters (2QFY2022/3QFY2022) growth has been predominantly driven by operating NII uplift, although credit costs remain low.”
In addition to being well-managed and with disciplined growth, the local banks could give higher dividends in 2024–2025. “DBS expects its CET1 ratio to jump to 16% when Basel 4 is implemented on Jan 1, 2024, which provides a comfortable cushion of 2 ppt to 3 ppt above its operating CET1 range of 12.5%–13.5%. OCBC and UOB could see a similar quantum of enhancement to their CET1 ratios. DBS intends to review its dividend policy at end-2022 with a view of hiking dividends per share (DPS) in 2023. Likewise, we would look forward to higher DPS from OCBC in 2023 as well,” brokerage UOB Kay Hian suggests.
Local versus global
