• 1Q21 earnings of S$1.5bn beat our expectation by 27% on lower-than-expected credit costs and higher non-interest income.
• GPs fell to just S$9mn for a 1bp credit cost, signalling the end of the crisis.
• CET-1 rises another 30bps to 15.5% to support pre-COVID DPS of S$0.56 p.a. once dividend restrictions are lifted.
• Maintain BUY with higher GGM TP of S$14.63, up from S$13.65. FY21e earnings raised by 5.6% for higher insurance and wealth-management income and lower allowances. We peg our TP at 1.27x P/BV and 9.5% FY21e ROE to reflect a better credit outlook. Catalyst expected from lifting of the dividend cap.

The Positives

+ Robust growth in non-interest income. Non-interest income rose 17% on a QoQ basis. This was driven by a 28% increase in wealth-management fees as market sentiments improved. Bank of Singapore’s AUM rose 1% QoQ to US$123bn or S$165bn. Profit from Great Eastern (GE SP, Not Rated) surged 191% QoQ from marked-to-market gains as market conditions improved. Total weighted new sales and new business embedded value (NBEV) were S$384mn and S$182mn respectively, while NBEV margin of 47.5% was 220bps higher than the last quarter.

+ Provisions lower than expected. Total allowances of S$161mn were made up of S$152mn in SPs and S$9mn in GPs. Its 1bp credit cost signalled sufficient provisions. Some of the SPs that the bank has to recognise in FY21e as a result of asset-quality deterioration can be migrated from S$864mn of GPs already expensed in FY20.

Loans under moratorium made up 2% of loans, unchanged from the last quarter. Of these, 92% were secured.

+ Strong capital position raises prospect of dividend hike. CET-1 improved from 15.2% to 15.5% QoQ. Stable asset quality and capital strength enabled OCBC to resume pre-COVID-19 DPS of S$0.56 p.a. and raises the prospect of dividend growth once MAS restrictions are lifted.

The Negative

– Weak loan growth. NII was flat QoQ as loans grew 1% from S$267bn to S$271bn. There was greater lending in Greater China, and to its network customers in the United Kingdom. With improved business confidence and consumer sentiment as the economy recovers, we are expecting mid-single-digit loan growth in the next few quarters.