4Q23F: Expect some seasonal softness
- Updated management guidance on FY24F NIM trajectory, portfolio credit quality, wealth fees and dividends to steer the sector’s re-rating/de-rating.
- Reiterate sector Neutral. Drastic Fed fund rate cuts affecting NIMs are a downside risk but c.7% div. yields should retain investors’ interest in banks.
- UOB is our sector top pick for better sequential performance. We think NIMs could be relatively more defensive vs. peers given its funding profile.
- We expect DBS to declare final DPS of S$1.04, OCBC to declare S$0.43 DPS, and UOB to declare S$0.95 final DPS in 4Q23F.
4Q23F: Watch for revised FY24F NIM and business growth outlook
We expect Singapore banks’ 4Q23F earnings to be weighed down by seasonally softer business volumes given the end-of-year festive period. Easing NIMs and modest fees will likely be a shared feature across the banks’ 4Q23F earnings, though still-benign credit costs may counterbalance some of the income weakness. In 4Q23F briefings, we expect banks to provide renewed interest rate outlooks and correspondingly their views on its implications on loan growth and asset quality going forward. We forecast final (ordinary + special) DPS of S$1.04 for DBS, S$0.43 for OCBC, and S$0.95 for UOB in 4Q23F. A quicker pick-up in wealth management fees are an upside risk. Asset quality deterioration as a result of the elevated interest rate environment is a downside risk.
DBS: We think a S$0.50 special DPS may be on the cards
We expect DBS to post 4Q23F net profit of S$2.53bn (-4% qoq, +7% yoy) as operating trends seen in 3Q23 likely persisted. We expect NIMs to contract c.2bp in 4Q23F, reflecting higher funding costs from a shift of CASA into fixed deposits in 2H23 – consistent with management’s view of NIMs having peaked in 3Q23, and its expectations of full-year NIMs averaging 2.16% in FY23F. We anticipate non-II to be sequentially weaker in 4Q23F given the seasonalities, though yoy momentum should remain intact. As a whole, 4Q23F CTI could trend higher towards c.41% given the lower income base and slight uptick in opex for digital and overall business purposes. We expect full-year FY23F credit costs to trend at the lower end of DBS’s c.10-15bp guidance given its relatively benign showing thus far. We anticipate DBS to hike its ordinary DPS to S$0.54 per quarter commencing 4Q23F, and declare a special DPS of S$0.50 for FY23F.
OCBC: NIMs likely to exceed mgmt.’s c.2.25% guidance for FY23F
We expect OCBC to record 4Q23F net profit of S$1.72bn (-5% qoq, +32% yoy). On NIMs, although its more expensive fixed deposits (placed at end-2022) have started to roll off, competitive pricing by peers at end-2023 had negated some of the funding cost reductions. On balance, we expect NIMs to contract c.2bp qoq in 4Q23F but still average c.2.27% in FY23F. Loan growth likely stayed muted in 4Q23F as customers maintained a “wait-andsee” approach. Overall fees were likely affected by seasonally softer business volumes. Notwithstanding the possibility of management overlay top-ups as OCBC continuously reviews its portfolio, we expect a normalised credit cost of c.20bp in 4Q23F. We forecast S$0.43 DPS in 4Q23F, bringing OCBC’s payout to 53% in FY23F (ie. FY22’s payout).
UOB: The bulk of Citi integration costs to be completed by 4Q23F
We expect UOB to post a net profit of S$1.5bn in 4Q23F (+2% qoq, +8% yoy). The bank is being tactical in its approach towards imminent Fed fund rate cuts and has been shoring up liquidity by offering competitive fixed deposit rates. That said, this would likely come at the expense of NIMs as the excess liquidity is placed in lower-yielding government securities. Fee income remains driven by its consumer business, with this being most apparent in its credit card business as travel activity picked up at end-2023. Continued Citi integration costs should be expected in 4Q23F (c.S$100m), bringing this total to c.S$350m400m in FY23F. We expect credit costs to remain relatively contained at c.25bp in 4Q23F post the deliberate write-down of collateral values in 3Q23. We forecast c.S$0.95 DPS in 4Q23F, in line with UOB’s 50% dividend payout ratio policy.
