Singapore Banks 3Q23 Earnings Forecast - CGS-CIMB Research 2023-10-17: Expect Modest Q-o-q Performance

• We expect Singapore banks’ earnings to be rather muted in 3Q23F. We think that the Fed rates remaining high likely resulted in weaker corporate demand, therefore limiting credit growth across the industry.
• As a whole, we expect flattish NIMs across the sector in 3Q23F as asset yield growth slows amid still-hefty funding costs (given deposit-taking competition and Fed rate hikes over the year).
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We look forward to FY24F outlook statements from management.

• While a key downside risk for the sector is severe asset quality deterioration as borrowers’ debt servicing abilities soften, we think that banks’ earnings downside in this case may be mitigated by the write-back of their ~S$1bn- 2bn management overlays.
• At the current juncture, banks have not indicated systemic risks. We keep watch on banks’ management outlook for FY24F during the 3Q23F results briefings. Asset quality will likely be a key focus area and could determine share price trajectory of the sector.
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DBS: We expect slight NIM expansion but higher credit costs

• We expect DBS to post 3Q23F net profit of S$2.63bn (-2% q-o-q, +17% y-o-y) as underlying trends observed in 2Q23 persist.
• On balance, 3Q23F NIMs should still improve slightly (we expect +2bp q-o-q to 2.18%) as the higher HIBOR (though it dipped and rose over 3Q23) offset the effects of continued CASA outflow over Jul-Aug 23.
• Loan growth in 3Q23F also likely remained tepid, in line with banking system statistics.
• Fee income recovery likely continued in 3Q23F, led largely by wealth management income, which could result in overall mid-to-high-single-digit fee growth y-o-y. This should position DBS well to achieve its mid-single-digit fee growth guidance for FY23F, in our view.
• We understand that treasury customer sales likely stayed strong, though trading income could trend softer given the elevated volatility in 1H23.
• DBS remains watchful on asset quality, though it reiterates its full-year credit cost guidance of the lower end of ~10-15bp. We understand that general provision write-backs are unlikely in 3Q23F as underlying credit trends remain stable. Nonetheless, we think that credit costs could trend slightly higher to ~12bp in 3Q23F given potential pockets of weakness.

OCBC: Likely better q-o-q performance as impairments ease

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Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2023-10-17 SGinvestors.io

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