SG Banks

SG Banks: In a wrap on S’pore bank’s FY13 results, Maybank-KE concludes that 4Q13 earnings performance was a mixed bag but the broad trends were unmistakably encouraging. All three banks delivered sequentially higher net interest margin (NIM), led by UOB (+3bps), while, credit quality stayed benign with no signs of asset quality stress. Loan growth was also stronger than expected (+18%) in 2013 with trade loans the main driver. Aggregate SGD liquidity profile remained strong while USD loan-to-deposit ratio (LDR) improved to 102.3% (2012: 117.7%), with the banks chalking up an impressive 55.1% growth in their combined USD deposits in 2013, demonstrating their ability to raise substantial USD deposits in a short period. Going forward, the house see a slower start to 2014, with share prices trading sideways in 1H14 before they start to react positively in 2H14 when signs of rising short-term rates, tipped to occur in mid-2015, emerge. In terms of valuation, S’pore banks are attractively priced at one standard deviation below their historical averages. The house reiterates its Overweight call on the sector, with DBS as the top sector pick, guiding that with interest rates poised to rise, DBS stands out as the clear-cut beneficiary given its most liquid SGD balance sheet and strongest deposit franchise. UOB remains a Buy, led by its large exposure to the more resilient Asean ex-Singapore markets, and a disciplined cost-conscious management team. Remain cautious on OCBC despite the stock’s cheap valuation, as share price weakness may persist, with downside bias, amid uncertainty over the pricing and funding structure of its proposed purchase of Wing Hang Bank.