Improvement in QoQ profit expected. Except for OCBC, we expect all three local banks to report a QoQ net profit rise in 2Q09. OCBC is expected to show a lower QoQ 2Q09 net profit because of its one-off S$175mil gain (net of tax and minorities) from the group’s 87%-owned Great Eastern Holdings recorded in 1Q09. Excluding this gain, OCBC should also see higher net profit in 2Q09 compared to the previous quarter. But 1H09 results of the three banks are still expected to show a YoY decline compared to 1H 2008 given much higher provisions made in 1H09.
Flat QoQ net interest income expected. Local banks are expected to report flat QoQ net interest incomes on the back of stable net interest margins and flat YTD loan growth. While interest spreads have widened on repricing of some loans, net interest margins may be weighed down by low S$ interbank rates in 2Q09. However, given a steepening in the positive yield curve (following the sharp rise in long-dated Government bond yields), there could have been opportunities for gapping profits in 2Q09.
Muted loan growth. We note that while industry housing loan growth has been very encouraging (+2.6% YTD as of May 2009), overall loan growth for the industry up to May 09 is still negative (-0.5% YTD). Lending to the commerce sector is still very weak, with YTD loan growth of negative 10.1% as of May 2009. But we think that with the downsizing in some foreign banks, local banks may have gained market share, particularly DBS. Hence, we think DBS would be likely to show highest loan growth among local banks.
Positive surprise may come from other income. Fees and commissions are expected to show marginal QoQ improvement as a result of higher brokerage income from more buoyant stock markets. One potential positive surprise could come from the banks’ other income or treasury income. We have been more conservative in our assumptions of local banks’ other income, which includes income from customer flows in interest rate and foreign exchange instruments - and the banks’ own proprietary book. Given the improvement in equity prices, these banks could have booked in higher gains from their trading portfolios in 2Q09.
Provisions could be lower-than-expected. Non-performing loans are expected to have risen in 2Q09 although we do not expect a sharp deterioration in the quality of the banks’ loan book. Local banks are expected to continue setting aside substantial provisions in 2Q09. But we think loan provisions for 2009 by DBS and UOB might be slightly lower - QoQ - given hefty amounts set aside in 1Q09. OCBC may report higher a QoQ rise in provisions given its low base in 1Q09.
Positive marked-to-market (MTM) adjustments. With the recovery in capital market prices since the lows in March 2009, we would expect to see positive marked-to-market adjustments for the banks’ available-for-sale portfolios in 2Q09. Note that any positive MTM adjustments to the banks’ AFS portfolios - in the case of UOB, which will be marked-to-model - would be made as a direct adjustment to equity and will help to boost BVs. UOB could possibly be the biggest beneficiary as it has the largest proportion of its AFS portfolio in equities and bonds (UOB: 60.2% as at December 2008 versus slightly more than 40% for the other two local banks).
Loan growth to pick up in 2H 2009. We expect loan growth in Singapore to improve in the second half of the year. One reason is that the buoyant sales in recent primary residential market launches (with 7,367 units sold in 1H 2009) will translate to loan drawdowns from 2H 2009 onwards. We would also expect loans to the manufacturing sector to pick up with the success of the Government’s sponsored SME loans under the SPRING scheme.
Reiterate our OVERWEIGHT call. We maintain our BUY calls on DBS, OCBC and UOB. Share prices of local banks are still below our fair values as derived from the Gordon Growth model. We think that there could be room for an earnings upgrade especially if the banks’ 2Q09 results were to turn out to be better-than-expected - and also if Singapore’s domestic economy continues to recover. We will soon be raising our GDP forecast to between -4% and -5% from an earlier forecast of -6% after Singapore’s positive 20% QoQ GDP growth in 2Q09.
Click here for more Banks and Financial Institutes Technical Analysis
Sponsored Links
Comments
No response to “Singapore Banking - No major surprises seen”
Post Comments (Atom)
Post a Comment |
Post a Comment