Banks: The three SG banks are due to report their 2Q15 earnings – DBS on 27 Jul, and OCBC and UOB on 31 July. Following a seasonally strong trading income, which boosted net profit last quarter, Deutsche expects earnings to be more normalized this time.
Overall, DB still sees steady-to-improving margin and fee income growth offsetting loan growth pressure as asset quality should remain benign. However, DBS and OCBC should be more resilient than UOB. As better in-sight catalysts remain on track, DBS remains its top pick among SG banks, followed by OCBC.
In 2Q15 results, DB expects the SG banks’ “defensive” fundamentals to remain a key attraction for investors. House expects:
1) steady-to-improving margin on the back of SIBOR pick-up since 2H14;
2) stable fee income growth, offset by a more normalized trading income;
3) overall benign asset quality but few markets with weaker spots. Geographically, HK and SG markets should be less vulnerable as compared to Indonesia, India, Thailand and Malaysia;
4) slowdown in loan momentum, which could be a key weak spot for the sector, posing further downside risk to growth expectation. In 2Q15, DB expects sector core earnings growth of -5% QoQ (+4% YoY).