Analysts unhappy about Singapore banks outperforming in 3Q

CIMB warns caution on 3 banks.

CIMB notes that all three banks beat expectations, but did not enjoy a clear re-rating post-3Q as the drivers of the beats were mostly market-driven gains that put in doubt the sustainability of their earnings. DBS is perhaps the exception, it said, with its investment-banking fees stirring back to life.

Here's more from CIMB:

DBS did well on IB fees, supported by booming debt capital markets that give more confidence to non-interest income sustenance vs. peers. DBS remains our top pick of the sector. UOB’s cautious margin guidance and weak core revenue drivers made a case for caution; we downgrade it to Underperform. OCBC is now our second choice.

The bright spots of 3Q
The bright spot was from non-interest income. DBS did well on IB and loan fees, the former propped by booming Asian debt capital markets and a broadening SG debt market. The current low-growth, high event-risk, low rates, and rising S$ environment is ideal for debt markets. DBS has a 40%-market share in Singapore and IB fees look more sustainable. OCBC and UOB beat expectations more on investment gains. UOB had a spurt in dividend income and tail-end gains from the sale of its EU securities. OCBC had hyped-up investment gains from insurance while treasury also did well. Today, NII growth is tough. Non-NII remains the avenue to grow revenues.

Margin squeeze not done
Margins continued to contract (2-8bp) for varying reasons. DBS saw stable margins in its core markets (SG, HK), China remained its only source of NIM pressure. UOB also saw stable SG NIMs but margin pressure from the region (ID, TH) and from lower investment securities’ yields. For OCBC, the issuance of longer-dated sub-debt was the reason for NIM drag. 

All three said that lagged re-pricing of SG mortgage still weighed on SG margins but corporate lending spreads helped compensate. There was little concern with deposit competition.

Capital surprise
All three banks saw RWA ease lower and capital ratios improve. Lowered RWA came from optimisation of collateral matching (DBS, a pleasant surprise), non-core proceeds (OCBC, expected) and retained earnings (all).

Liquidity also improved as deposits growth leaped (unexpected) and loan growth slowed. The Singapore banks are ready for Basel III phase-in, on
both liquidity and capital fronts.



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