SG Banks

SG Banks: Singapore banks, the outperformer last year, has trailed the STI by 5% YTD. During the same period, 3M Sibor has moved up 38bp. Theoretically, this should lead to NIMs expansion and subsequently, a small decline in NPLs.

Among the three SG banks, JPM’s key OW is on OCBC and key UW on UOB, it is OW on DBS.

OCBC (OW, TP $12.00) – most underappreciated. 50bps q/q pick-up in CET1 and guidance for further accrual reflects good capital management, healthy CET1 of 11.5%-12% is expected by end of next year. Therefore, implied discount for stock to narrow. Counter has best risk-return trade-off ex-growth valuations

DBS (OW, TP $21.50) – best positioned for move-up in short rates and steepening of yield curve. Net duration of books is low as it has not fully optimized its long-duration low-cost funds, hence presents opportunities. Credit risk management improved meaningfully, hence should increase resilience in upcoming credit cycle.

UOB (UW, TP $21.50) – transition period as business drivers shift. Bank is shifting away from real estate loans, which had previously shown signs of asset quality issues; asset quality remains key concern as 4Q construction NPL picked up. Effective tax rate will increase due to lack of one-time tax write-backs going forward. Risk-return could be negative.