• April’s 3M-SORA was up 25bps MoM to 3.60%, 3M-HIBOR was down 21bps MoM to 3.59%. HIBOR is down 170bps this year.
• 1Q23 bank earnings were modestly above expectations. PATMI rose 50%, supported by NII growth of 50% YoY. Provisions were higher but credit cost still at their lows of 18bps. Guidance for FY23e NIMs (from 2.1-2.25% to 2.05-2.2%) and loans growth (from mid-single digit to low to mid-single digit).
• Singapore domestic loans dipped 3.98% YoY in March, below our estimates, while Hong Kong’s domestic loans declined 3.30% YoY in March. The CASA balance dipped slightly to 18.9% (Feb23: 19.2%).
• Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive at 5.7% with upside surprise in dividends due to excess capital ratios and push towards higher ROEs. SGX is another major beneficiary of higher interest rates (SGX SP, BUY, TP S$11.71).

3M-SORA continues to climb; 3M-HIBOR dips in April

Singapore interest rates rose in April. The 3M-SORA was up 25bps MoM to 3.60%, the MoM increase was the highest recorded since Dec 2022’s MoM increase of 39bps. April’s 3M-SORA improved by 330bps YoY and was 40bps higher than the 1Q23 3M-SORA average of 3.20%.

Hong Kong interest rates declined and reversed the increase from the previous month. The 3M-HIBOR was down 21bps MoM to 3.59%, the MoM decline was a reversal of the MoM increase of 25bps in March 2023. April’s 3M-HIBOR improved by 304bps YoY and was 23bps lower than 1Q23 3M-HIBOR average of 3.82bps (Figure 1).

1Q23 RESULTS HIGHLIGHTS

1. NII and NIM continue to surge YoY, but stagnate MoM

DBS’ 1Q23 earnings of S$2.57bn were above our estimates, and 1Q23 PATMI was 28% of our FY23e forecast. 1Q23 DPS is raised 17% YoY to 42 cents. NII spiked 50% YoY to S$3.27bn on NIM expansion of 66bps to 2.12% despite loan growth remaining flat YoY. However, NIM growth MoM has declined to 7bps as funding costs creep up (2Q22: +12bps, 3Q22: +32bps, 4Q22: +15bps). Management has lowered its NIM guidance from 2.10% to 2.05-2.10% and indicated that NIM has likely peaked in 1Q23 with the NIM decline to be gradual for the rest of 2023 due to an increase in funding costs.

OCBC’s 1Q23 earnings of S$1.88bn were slightly above our estimates and came from higher net interest income and a reversal of fee income decline offset by lower insurance income. 1Q23 PATMI was 28% of our FY22e forecast. NII grew 56% YoY led by NIM improvement of 75bps YoY to 2.30% despite loan growth remaining flat YoY. However, both NII and NIM declined QoQ, the first decline in 6 quarters. This was mainly due to a rise in asset yields being offset by higher funding costs, as well as lower loans-to-deposits ratio as the increase in deposits outpaced that of loans. Nonetheless, OCBC has increased their NIM guidance for FY23e from 2.10% to 2.20%. 

UOB’s 1Q23 adjusted earnings of S$1,577mn were slightly above our estimates due to higher other non-interest income and lower allowances offset by lower-than-expected NII growth. 1Q23 adjusted PATMI was 28% of our FY22e forecast. NII was up 43% YoY despite a decline in loan growth of 1% YoY, while NIM surged 56bps YoY to 2.14% but declined QoQ for the first time in 6 quarters by 8bps (QoQ: 3Q22: +28bps, 4Q22: +27bps, 1Q23: -8bps) mainly from liquidity surplus placed into high quality assets and increase in funding costs. Loan growth decline was due to corporates paring down their borrowings, while trade and mortgage loans were stable. UOB has lowered its loan growth guidance from mid-single digit to low to a mid-single digit and NIM to stay around 2.1-2.2% for FY23e.

2. Fee income started to recover in 1Q23

DBS fee income fell 4% YoY (3Q22: -13%, 4Q22: -19%) due to weaker market sentiment affecting wealth management and transaction service fees, which more than offset increases in card and investment banking fees. Nonetheless, fee income saw a recovery of 29% QoQ from broad-based growth. WM fees rose 39% QoQ, investment banking fees spiked 91% QoQ and loan-related fees surged 80% QoQ. However, card fees fell 7% QoQ due to seasonally higher spending in 4Q22.

OCBC’s fee income YoY decline moderated to 14% (4Q22: -24%) to S$453mn mainly due to a drop in wealth management fees as customer activities were subdued amid risk-off investment sentiments globally. Nonetheless, it saw its first QoQ increase in 6 quarters, growing 14% QoQ mainly driven by higher wealth management fees. The Group’s wealth management income was S$1.10 billion, 33% higher QoQ, and contributed 33% to the Group’s total income. OCBC’s wealth management AUM was higher at S$270bn (1Q22: S$251bn) mainly driven by sustained growth in net new money inflows and positive market valuation.

UOB’s fee income fell 16% YoY, 3% YoY largely due to lower wealth and fund management fees as investor sentiment remained subdued. 1Q23’s decline is significantly smaller than 4Q22’s YoY decline of 16%. Nonetheless, fee income saw its first QoQ increase in four quarters, rising 14% QoQ largely due to a recovery in wealth management fees of 27% QoQ as investor sentiments started to improve. Likewise, loan-related fees rebounded 14% QoQ, while credit card fees sustained its momentum despite seasonally softer quarter.