- With limited catalysts, downgrade DBS, UOB to HOLD.
- Together with HOLD on OCBC, downgrade Singapore banking sector outlook to NEUTRAL.
NPLs, earnings, capital returns at risk.
- - Read this at SGinvestors.io -
- Operational downgrades are likely, as credit demand and margins shrink. Capital returns may also slow as balance sheets are preserved.
- Nevertheless, the sector’s strong liquidity, capital levels and provisioning makes it much better prepared than past down-cycles and this is a competitive advantage.
A new NPL cycle?
- - Read this at SGinvestors.io -
- Unlike COVID, where governments unleased fiscal relief, stretched budgets may not allow similar flexibility this time around. Additionally, the sector’s exposure to developed markets (including US, EU) has increased from 14% of loans in 2019 to 18% in 2024. Potential slowdowns and recessions in these economies are a critical risk.
- In the first year of the 2000-01 recession and global financial crisis (GFC), average non-performing loans (NPL) increased +45% y-o-y. For 2025E and 2026E we have raised NPL growth to +18% y-o-y – higher than COVID.
- Credit charges peaked between 84bps-93bps. For this cycle we forecast a peak of 39bps. Downgrade risks are high as the current situation develops.
Operational headwinds can get worse.
- Read more at SGinvestors.io.
