- The Fed has taken unprecedented action, raising interest rates by 75bp to 3.25% in Sep 22 in its bid to reel in persistent inflation.
- In Singapore, investors have correspondingly been holding their breath on a recession in the US spilling over into Asian economies, which has somewhat resulted in an overhang on banks’ valuations. Although this translates to global economic growth further slowing amid higher unemployment rates, we think that Singapore banks will nonetheless remain beneficiaries from the pass-through of these higher rates into NIMs.
- - Read this at SGinvestors.io -
- Reiterate Overweight on Singapore banks. We expect stronger sequential NIM expansion to continue driving the rerating of Singapore banks. Positive newsflow (to banks) of the Fed’s refreshed commitment to contain inflation supports our thesis. Further, capital ratios across the sector remain robust at ~13-15% in 2Q22.
- - Read this at SGinvestors.io -
- Risks to our estimated earnings upside include a sharper-than-anticipated rise in funding costs from attrition from CASA into fixed deposits or due to deposit-gathering efforts by banks, as well as possibly heftier credit costs to come as higher interest rates pressure borrower repayment capacities.
- While we understand that property developer exposures in China remain contained, we think that SMEs (~6-13% of gross loans) could be a segment at risk if trade sentiment weakens. Our stress test of household balances in SG has found that all households servicing a mortgage for public housing (except those in the bottom 10% income levels) will remain below the 55% total debt servicing ratio threshold, even at a 4.5% per annum rates.
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- Read more at SGinvestors.io.
Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.
Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2022-09-30
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