• February’s interest rates were up modestly by 7bps MoM.
• 4Q21 results, banks’ NIM stabilised while fee income continued to grow. GP writebacks across all three banks resulted in lower full-year allowances.
• Hong Kong’s domestic loans growth fell by 6.79% YoY but grew by 0.81% MoM in January. Malaysia’s domestic loans growth increased 66% YoY and rose 0.53% MoM in January.
• Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive with upside surprise due to excess capital ratios. Improving economic conditions and rising interest rates remain tailwinds for the banking sector. SGX is another beneficiary of higher interest rates.

3M-SOR and 3M-SIBOR up in February

Interest rates were up slightly in February. The 3M-SOR was up 7bps MoM to 0.39% while the 3M-SIBOR was up 1bp MoM to 0.45%. The 3M-SOR is 8bps higher than its 4Q21 average of 0.31% and has improved by 18bps YoY. The 3M-SIBOR is 1bp higher than its 4Q21 average of 0.44% and has improved by 4bps YoY (Figure 1).

4Q21 RESULTS HIGHLIGHTS

Fee income grew while NIM remained stable

DBS’ FY21 earnings of S$6.8bn met our estimates as higher fee income and strong loans growth offset lower NIMs. 4Q21 DPS rose 9% to 36 cents. Full-year fee income grew by 15% YoY to a record S$3.52bn as economic and market conditions improved. NIM remained flat QoQ but declined 6bps YoY to 1.43% as a result of lower market interest rates as customer deposits grew 3% QoQ to S$502bn. Management guided similar FY22e NIMs of 145-150bps.

OCBC’s FY21 earnings of S$4.86bn met our estimates despite higher-than-expected allowances which were offset by higher net interest income. 4Q21 DPS rose 12% to 28 cents. Full-year fee income grew 12% YoY to a record S$2.25bn from broad-based fee growth on the back of higher transaction volumes and customer activities. NII grew 4% YoY and 2% QoQ led by loan growth of 8% YoY and 2% QoQ while NIMs remained flat QoQ at 1.52%.

UOB’s FY21 earnings of S$4.08bn missed our estimates by 6% due to lower-than-expected trading and investment income. 4Q21 DPS was stable at 60 cents. Full-year fee income grew 21% YoY to a record S$2.41bn, driven by double-digit growth in most activities. NII grew 5% QoQ and 11% YoY, led by continued loans growth of 2% QoQ and 10% YoY, while NIM improved 1bp this quarter to 1.56%.

GP writebacks made the difference in 4Q21

DBS’ 4Q21 total allowances were significantly lower YoY but higher QoQ due to a lower write-back in GPs. Full-year allowances fell 98% YoY to S$52mn due to repayments of weaker exposure, credit upgrades and transfers to non-performing assets resulting in general allowance write-backs during the year. Full-year credit cost of 12bps is below pre-pandemic levels. Management has guided similar allowances for FY22e.

OCBC made SPs of S$387mn during the quarter, which is 109% higher than 3Q21’s SPs of S$185mn. This increase was mainly driven by project financing delays due to supply chain disruption brought about by COVID-19. However, OCBC was able to write back GPs of S$70mn during the quarter mainly due to downgrade of accounts to ECL stage 3 allowances, and refresh of the macroeconomic variables in the ECL model. OCBC has guided credit costs of 20-25bps for FY22e compared with FY21’s credit costs of 29bps.

UOB’s GP write-back of S$76mn in 4Q21 resulted in full-year GPs reducing by 90% YoY to S$95mn. Credit costs on allowances dropped by 8bps QoQ to 12bps. Full-year credit costs were lower by 37bps at 20bps as FY20 included pre-emptive allowance for non-impaired loans. Total general allowance for loans, including RLARs, were prudently maintained at 1% of performing loans. UOB has guided credit cost of 20-25bps for FY22e due to lower SPs.