Banks: Total system loan growth for YTD Nov 2015 came in at 1.4% (Nov 2014: 9.1%). Overall loan growth was dragged by the contraction in business loans, compensated by growth in property loans. YTD Nov 2015, business loans fell 2.3%, consumer loans rose 2.4%, while property loans increased 9.7%. CIMB expects loan growth in the low-single-digit range in 2015-16 due to weak loan demand.
House believes the banks’ consumer loan books remain sound. Mortgages continue to see benign credit quality. As of 3Q15, system mortgage NPL was at 0.4% (DBS: 0.2%, OCBC: 0.5%, UOB: 1.0%). CIMB is more concerned with the banks’ exposure to commodities, especially second-tier oil & gas services firms, and a slowing ASEAN.
For DBS and OCBC- even with CIMB's bearish assumptions for FY16 (3-5% below consensus)- House thinks that ROEs still justify COE, which makes them good value at the current 1x CY16 P/BV. OCBC remains its most preferred stock for potential synergies from its WHB acquisition and opportunities to monetise non-core assets.
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