DBS OCBC UOB 1Q23 Round-Up - UOB Kay Hian 2023-05-11: Bracing For Potential Slowdown & Geopolitical Headwinds

DBS OCBC UOB 1Q23 Round-Up - Bracing For Potential Slowdown & Geopolitical Headwinds

  • 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

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  • 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

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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)


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