1Q22F: Weighed down by risk-off sentiment
? 1Q22F earnings will likely be characterised by weaker wealth and treasury
income, weighed down by risk-off sentiment amid market volatility.
? Credit costs likely stayed stable in 1Q22F, but watch out for revisions in the
banks’ outlook for the rest of FY22F given the geopolitical uncertainty.
? Reiterate Overweight. We see continued share price upside as US Fed fund
rate hikes filter into NIMs.
? For 1Q22F results, we think OCBC could offer a better risk-reward with
valuation of 1.1x FY22F P/BV and +23% qoq rise in net profit.
1Q22F: Challenged by market volatility
We expect banks to report relative modest 1Q22F earnings as risk-off sentiment had
weighed on wealth management and treasury income amid heightened market volatility .
While meaningful NIM expansion from the 50bp Fed fund rate hike in Mar 22 w ill likely
materialise only later in the year, upward asset pricing pressure from rising S$ rates could
have spurred NIMs up c.1bp in 1Q22F. Loan demand appeared mixed across the banks;
corporate demand likely sustained but housing loans were flattish. We expect other fee
income drivers to have held steady with trade, transaction and loan-related fees tracking
the pick-up in business activity, while credit card fees captured rising travel-related
spending. We believe opex crept upwards in line with revenue growth and some w age
pressures, but CTI likely remained broadly stable. We understand that asset quality across
various portfolios remained benign and that there are no indications of systemic risk from
elevated energy/commodity prices. Credit costs likely remained contained in 1Q22F, but
we see risk of banks revising their guidance for the rest of FY22F upwards (negatively).
DBS: Fee income resilient, but wealth and treasury could be drags
We expect DBS to record 1Q22F net profit of c.S$1.7bn (+22% qoq, -15% yoy). We
understand that its loan grow th is on track to meet its mid-single-digit target for FY22F. We
project that w hile positive momentum in S$ rates likely pushed its NIM slightly higher (we
expect +c.1bp to 1.44%), total income w as ultimately w eighed dow n by w eak w ealth and
treasury income, coming off a high base in 1Q21 w hile being challenged by volatile market
conditions. Other fee income likely improved, but insufficient to compensate for the marketrelated income w eakness. We project c.8bp credit costs for DBS, derived from its run-rate
of specific provisions (SPs) over FY21 and some possible general provision (GP) w ritebacks from migration to SPs (as exposures turn into NPL) and credit upgrades.
OCBC: Trades at 1.1x FY22F P/BV with +23% qoq in 1Q net profit
We expect OCBC to record 1Q22F net profit of S$1.2bn (+23% qoq, -20% yoy). OCBC
noted some weakness in loan demand in 1Q22F as corporate clients turned more cautious.
Housing loan demand slowed as well. Some slight NIM upside could materialise from the
upw ard repricing of short-term trade loans; w e project +c.1bp for 1Q22F. Insurance income
likely held steady as rising interest rates aid in crafting more attractive products. We
understand that customer flow treasury income w as strong due to heightened hedging
activity, but mark-to-market (MTM) losses from Great Eastern could mar this. We believe
credit cost normalised in 1Q22F but highlight possible incremental GPs on the back of a
revision of the bank’s ECL model assumptions. We project c.22bp credit costs in 1Q22F.
UOB: Holding on to balance sheet strength until rates rise further
We expect UOB to post 1Q22F net profit of S$961m. UOB observed strong loan grow th
from sustained demand from property funds and financial institutions (FIs) as w ell as
traders tapping larger credit lines amid higher commodity prices, although it remains
selective on w ho it extends credits to, assessing exposures on a return on risk-w eighted
assets (RORWA) basis and not just on NIM. UOB sees scope to reprice its loans on the
back of higher benchmark rate increases, although it is pacing out the deployment of its
balance sheet in anticipation of further rate hikes to come. UOB’s asset quality likely
remained benign in 1Q22F, although inflationary pressures could push (future) credit costs
higher if sustained, particularly amongst its SME clientele.