+ Gradual recovery in income
Fee and commission income of S$514mn was down 7% YoY but up 16% QoQ. As economic activity resumes across the region, we expect further improvements to near pre-COVID-19 levels.
+ Allowances on impaired loans remained low
SP recognised amounted to S$134mn or 19bps of loan book. This was lower than the 21bps or S$149mn a year ago. The remaining S$342mn of allowances for GP represented a 49bp credit cost, improving GP reserves to S$3,091mn (including RLAR) and non-performing asset coverage to 111% from 96% in Q2.
– NII fell 13% YoY as NIM was down 24bps to 1.53%
Low interest rates continued to affect NII, which dropped 13% YoY. Nevertheless, better liquidity management lifted NIM by 5bps QoQ from a low of 1.48% in Q2. We expect NIM to stabilise at 1.50-1.55% on the back of stable interest rates and funding conditions.
Credit-cost guidance lowered on better insights on asset quality
Loans under moratorium fell from 16% of its loan book in Q2 to 10% in Q3. The fall came largely from Malaysia as loans in Malaysia exited moratorium at end-September.
The remaining loans under moratorium were mostly from Singapore and Thailand. The bank is confident it can manage asset quality, given that around 90% of them are secured. It has lowered credit-cost guidance from 50-60bps for this year to 30-40bps for FY21.
Maintain ACCUMULATE with higher target price of S$21.10 (previously S$20.40)
We hold our FY20e earnings estimate but raise FY21e forecast to reflect lower credit costs of 30-40bps. Our TP remains pegged to GGM (FY21e P/B of 0.89x).