Singapore Banking Monthly Extending their green shoots April 5, 2021 160

PSR Recommendation: BUY Status: Maintained
Target Price: 29.50
  • Current interest rates of 0.42% are 11bps higher than the start of the year.
  • Loans fell 0.88% YoY in February but grew 0.46% MoM, the fourth consecutive month of growth.
  • SGX’s SDAV was third-highest on record but down YoY alongside DDAV as there was an anomalous selloff during the COVID-19 outbreak last year.
  • Maintain Overweight. Loans remain on path for recovery and interest rates are stable with a positive economic outlook. We continue to prefer OCBC (OCBC SP, BUY, TP: S$13.65) for its WM and insurance franchises.

Interest rates ticked up in March

Interest rates edged higher for a second consecutive month to 0.42% in March. Year to March, they were up 11bps. Still, the rates were 53bps lower than their FY20 average. We continue to expect FY21e NIMs to come in at 1.45-1.55% for the three banks, lower than their 1.60% average in FY20.

Investment action

Maintain Overweight

Despite the run-up in their share prices in 1Q21, we continue to see upside for banks. They had traded above 1.4x P/B before in the past five years and are currently trading close to or below our P/B targets of 1.17-1.31x (Figure 10). Our targets are supported by improving ROEs as allowances ease off in FY21e.

The banks have also emerged from FY20 with stronger capital ratios of 13.9-15.2%. These are higher than their ideal operating range of 12.5-13.5%, which banks hope to achieve so as to not negatively impact ROEs from holding excess capital. This should support a resumption of pre-COVID dividend payouts once the MAS lifts restrictions.

For sector exposure, we continue to prefer OCBC. OCBC is expected to book faster earnings growth from its wealth-management and insurance franchises as market conditions improve.


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About the author

Profile photo of Tay Wee Kuang

Tay Wee Kuang
Research Analyst
Phillip Securities Research

Wee Kuang currently covers the Banking and Finance as well as the Healthcare sector. Wee Kuang has had 2 years of experience as a Trading Representative (TR) before his current stint as an Analyst. As a TR, Wee Kuang developed a keen interest in investor education and hopes to be able to provide better insights for investors in his current role.

Wee Kuang graduated with a Bachelor of Business Management (Cum Laude) with major in Finance and Operations Management in 2017.

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