Banks

Banks: Deutsche highlights how banks have fallen 18% ytd. The sector looks discounted, trading about book value, which is -1SD below 15yr avg.

There are five key trends and drivers for SG banks this year
1) Slower loan momentum,
2) Softer revenue growth – weaker NII and market
3) Manageable credit cost trend despite macro headwinds – thanks to proactive provisioning during good times
4) Cost savings could become apparent this year to maintain CTI
5) Deutche’s preference for developed market exposure.

The house thinks DBS is the most attractive bank in Singapore, given:
1) Shorter duration of lending book – giving them more flexibility in asset liability management
2) Higher exposure to developed markets, less currency volatility induced volatility, and highest % of CASA, will help DBS to position itself as interest rates trend up
3) A fee income boost of about 2% in FY16e from the 15-ytear Manulife partnership, which should increase the bancassurance capacity in key deposit-rich markets such as HK and Singapore.

Nevertheless, Deutsche cuts TPs for banks across the board, factoring in lower fee and higher credit cost assumptions, as well as higher cost of equity assumption amid rising concerns and higher vulnerabilities of SG banks’ overseas markets.

The house’s ratings for banks:
DBS, Buy, TP cut to $19.8 from $22
OCBC, Buy, TP cut to $10.00 from $11.30
UOB, Hold, TP cut to $20 from $23