新加坡银行与金融

Editor:Vaughn LITel: (852) 2277 6628Email: foreignstock@phillip.com.hk Page | 1 | PHILLIP SECURITIES RESEARCH (SINGAPORE) MCI (P) 075/10/2016 Ref. No.: SG2017_0209 Singapore Banking and Finance Stronger Economy and Higher Dividends Expected SINGAPORE | BANKING & FINANCE | UPDATE  We expect Singapore banks to finally see better loans volume and rate dynamics as the economy and capital markets improve.  Negative EV and record capital ratios will encourage banks to return excess capital to shareholders in the form of dividends.  We maintain our Reduce rating on UOB and Neutral rating on OCBC. And we upgrade our rating on DBS from Reduce to Accumulate. And why did we upgrade DBS? As competition increase, we expect NII to be led by loans volume growth. DBS has the highest Singapore CASA ratio of 91% and the largest overall deposit base of S$342.9bn. This will mean UOB and OCBC will not be able to lend more competitively than DBS. We believe this is the advantage DBS enjoys over its peers, especially against foreign banks like HSBC and BOC as they begin to compete for loans in Singapore. Loans Growth will be the driver for better NII. Singapore banks’ NII performed better because of stronger loans growth. The actual loans growth rate in 1H17 had exceeded bank managements’ guidance of mid-single digit loans growth. The recent improvements to economic outlook across Singapore banks’ key markets including Malaysia and Hong Kong will continue to support loans growth and positive loans volume and rate dynamics. However, we expect the pass through of higher interest rates to be crimped by competition especially in the property sector therefore NIMs expansion may be more subdued. We expect excess capital to be returned to shareholders in the form of higher dividends. We think that the build-up of excess CET 1 above the regulatory hurdle of 6.5% and the threat of negative economic value as WACC exceeds ROIC may spur the Singapore banks to return some excess capital to shareholders. We opine that the banks may experience lower ROIC because of our view of a more subdued NIMs. Therefore capital that cannot be deployed to improve ROIC above WACC may instead be returned to shareholders. INVESTMENT ACTIONS Upgrade to NEUTRAL Singapore Banking Sector – We upgrade the Singapore Banking Sector to Neutral weight from Underweight. Macro conditions have been more positive than we expected. We expect higher interest rates and loan volume to help drive NII higher. We maintain our Reduce rating on UOB and Neutral rating on OCBC. And we upgrade our rating on DBS from Reduce to Accumulate. 18 September 2017 NEUTRAL (Upgrade)DBS Group HoldingsAccumulate (Upgrade)BLOOMBERG CODEDBS SPLAST TRADED PRICESGD 20.06FORECAST DIVSGD 0.66TARGET PRICESGD 21.45TOTAL RETURN10.22%Oversea-Chinese Banking CorpNeutral( Maintain)BLOOMBERG CODEOCBC SPLAST TRADED PRICESGD 10.95FORECAST DIVSGD 0.36TARGET PRICESGD 10.81TOTAL RETURN2.01%United Overseas Bank LimitedReduce (Maintain)BLOOMBERG CODEUOB SPLAST DONE PRICESGD 23.05FORECAST DIVSGD 0.70TARGET PRICESGD 20.18TOTAL RETURN-9.40%Jeremy Teong (+65 62121853)Investment Analystjeremyteongfh@phillip.com.sg List of Abbreviations WM – Wealth Management NII – Net Interest Income NIM – Net Interest Margin LDR – Loan to Deposit Ratio NPL – Non-performing Loans PPOP – Pre-Provision Operating Profit WACC – Weighted Average Cost of Capital ROIC – Return on Invested Capital FHR – Fixed Deposit Home Loan Rate EV – Economic Value Page | 2 | PHILLIP SECURITIES RESEARCH (SINGAPORE) BANKING & FINANCE SECTOR UPDATE Loans growth is better than consensus but NIM and allowances are generally in line. 1H17 results FY17e guidance FY17e Consensus Commentary DBS OCBC UOB DBS OCBC UOB DBS UOB OCBC Loans growth (YoY) 6.6% 11.4% 7.3% Mid-Single Digit % Mid-Single Digit % Mid-Single Digit % 3.6% 5.1% 3.8% Actual growth has outperformed guidance and consensus NIM 1.74% 1.65% 1.74% c.1.8% c.1.65% c.1.7% 1.78% 1.69% 1.73% Actual NIM is lagging as loans growth outpaces interest rate growth Allowances 1H17 S$854mn, forming 82.6% of guidance - 32bps FY17e total allowance c.S$1.03bn (ex Swiber c.S$400mn) - 32bps S$1.32bn S$725mn S$724mn (32bps) Allowances could increase more than expected as oil and gas sector continues to grapple with low cash flow NPL Stable since 4Q16 Expect NPLs to stabilise. NPA ratio higher 14% YoY Elevated Net NPL formation offset by write-offs may continue to weigh down on coverage ratio Source: Bloomberg, PSR estimates Page | 3 | PHILLIP SECURITIES RESEARCH (SINGAPORE) BANKING & FINANCE SECTOR UPDATE How did Singapore banks’ share price move in comparison with interest rates? Contrary to market expectations that a rising SIBOR is always beneficial for Singapore banks, we have seen increasing SIBOR result in a ste