DBS

DBS: With Hong Kong being the bank’s largest overseas market, CLSA feels that DBS faces strong revenue and asset quality headwinds. While DBS’s HK business has benefited from improvements in efficiency, a stronger funding profile, more customer treasury activity, and strong growth in trade, SME, credit card and wealth businesses, the house feels that the operating environment will likely remain challenging for the next couple of years.
The house thus expects:
1. DBS’s ROE to decline to 9.4% by 2017
2. Margin expansion to be constrained by pressure on China-related portfolio
3. Non-interest income to benefit from market volatility, however a drop in overall customers will probably offset this effect
4. Investment in its business and other cost pressures should reduce the effect of any cost cutting measures
5. Rising credit costs
6. Some deleveraging
The house reiterates its Sell call with TP $15.