- Singapore banks delivered strong earnings growth in 1Q23 with massive NIM expansion y-o-y, enhanced cost efficiency and benign asset quality. They have maintained strong CET-1 CAR and liquid balance sheets as they brace for a potential economic slowdown and geopolitical headwinds.
- DBS and OCBC provide 2023F dividend yields of 5.3% and 6.1% respectively. Our preferred BUY is OCBC, followed by DBS. Maintain OVERWEIGHT.
Singapore Banks' 1Q23 earnings above expectation
- - Read this at SGinvestors.io -
- - Read this at SGinvestors.io -
- Comparison on strength of funding franchise. The flight to safety and associated influx of liquidity resulted in fixed deposits increasing 9% q-o-q at DBS and 16% q-o-q at OCBC. DBS’ CASA ratio dropped by 3ppt q-o-q to 57%, while that of OCBC dropped 5ppt q-o-q to 47%. UOB’s CASA ratio was stable at 48%.
- Cognisant of external uncertainties. Banks have adopted cautious positions, with low loan-to-deposit ratio of 79% for DBS, 79% for OCBC and 83% for UOB. Net stable funding ratios (NSFR) were 118% for DBS, 120% for OCBC and 121% for UOB.
- Benefitting from strong trading income. DBS and UOB saw strong other non-interest income of S$814m (+35% y-o-y) and S$563m (+457% y-o-y) respectively. DBS benefitted from strong customer flows and treasury market activities. UOB benefitted significantly from trading and liquidity management activities.
- Enhanced cost efficiency. Banks delivered positive JAWS with revenue growth exceeding the increase in operating expenses. DBS and OCBC have controlled the increase in operating expenses at 14% and 3% y-o-y respectively. Cost-to-income ratios (CIR) have fallen below 40% at 38.1% for DBS and 37.1% for OCBC (aided by the adoption of SFRS(I) 17). UOB’s operating expenses increased 36% y-o-y (excluding the Citi integration costs) and its CIR is 40.9% (excluding the Citi integration costs).
- Asset quality was benign. NPL formation was benign at S$218m at DBS, S$174m for OCBC and S$301m for UOB. The banks benefitted from strong upgrades and recoveries (DBS: S$251m, OCBC: S$258m and UOB: S$80m). NPL balances dropped 3.4% q-o-q for DBS and 4.5% for OCBC but increased 3.6% q-o-q for UOB.
- Record earnings deliver high ROE. DBS, OCBC and UOB reported high ROEs of 18.6%, 14.9% and 14.7% respectively.
Maintain OVERWEIGHT on Singapore banks
- Read more at SGinvestors.io.
Above is the excerpt from report by UOB Kay Hian Research.
Clients of UOB Kay Hian may be the first to access the full report in PDF @ https://www.utrade.com.sg/.
Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2023-05-11
More reports on banking & finance sector:
Analyst Reports on Singapore Banking & Finance Sector
Read also:
Analyst Reports on DBS Group
Analyst Reports on OCBC Bank
Analyst Reports on United Overseas Bank (UOB)
