- 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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