- 2Q23 NIM expected to continue q-o-q decline across most banks even as fixed deposit rates start to decline
- Loan growth and fee income largely weak in a risk-off environment
- Asset quality remains benign, expect q-o-q 2Q23 net profit decline for OCBC and UOB
- Maintain HOLD ratings on OCBC and UOB as high dividend yields support share prices as earnings peak; Prefer Indonesia Banks as expected strong loan growth continues to support net interest income and earnings
2Q23 NIM expected to continue q-o-q decline across most banks even as fixed deposit rates start to decline. We believe further rate hikes will limit loan yields upside as DBS Group Research expects a final 25bps rate hike to take place in July, with competition for high quality loans on the rise. While fixed deposit rates had started to decline during 2Q23, the higher rates locked in will continue to weigh on 2Q23 NIMs.
Loan growth and fee income largely weak in a risk-off environment. With system loans in Singapore remaining flattish in the months since end-March 2023, we continue to expect muted loan growth from the Singapore Banks during 2Q23. We expect non-interest income to be mixed across banks as fee income may continue to see a drag from weak market sentiment, though strong customer-related treasury income should buffer overall non-interest income.
Asset quality benign in meantime, expect q-o-q 2Q23 net profit decline for OCBC and UOB. Asset quality across Singapore Banks remains benign in the meantime, and we remain comfortable with average LTVs of 40-60% for the banks’ commercial real estate exposure. While credit costs and expenses are likely manageable for 2Q23, we expect q-o-q 1Q23 net profit decline for OCBC and UOB with weaker net interest income and mixed non-interest income
Maintain HOLD on OCBC and UOB as high dividend yields support share prices as earnings peak; Prefer Indonesia Banks as expected strong loan growth continues to support net interest income and earnings. We do not see any immediate catalysts on the horizon for Singapore Banks, although valuations of OCBC and UOB remain undemanding at c.0.95x FY24F P/BV. High dividend yields of c.5.8%, and strong provisions buffer continue to support share prices, limiting downside in the near term.
