Monday, 19 January 2015

Singapore Banks

Kim Eng on 19 Jan 2015

  • Household sector poses no threat
  • Household balance sheets solid. Leverage comfortable. Cash & cash equivalents exceeding debt.
  • Values of homes, shares & securities would need to halve for peak leverage to return. Remote.
  • Maintain OVERWEIGHT with earnings deliveries as short-term catalysts. DBS our top pick, followed by UOB.
Bright spots…
Household wealth hit a new record of SGD1,454.7b (+1.4% YoY) or SGD266,000 per capita in Sep 2014. QoQ, it contracted 0.2%, on lower values of homes, shares and securities. While higher, household leverage remained a comfortable 16.6%. Household financial liquid assets, comprising cash & deposits and shares & securities, were up 4.4% YoY to SGD513.0b, topping household debt of SGD290.3b.

… and safety nets
Based on our estimates, the combined value of homes, shares and securities would need to halve for household leverage to revisit its previous peak of 21.1%. With the labour market expected to remain tight, consumer loan quality is unlikely to deteriorate much, in our assessment. Furthermore, macro-prudential measures targeting housing, car and unsecured personal loans should provide some protection against soaring interest rates and weaker economic prospects.

Maintain OVERWEIGHT. We expect banks to be re-rated further, from continued earnings deliveries. Waning interest in the oil & gas sector could also benefit them through sector rotations.  DBS is our first choice, followed by UOB. Remain cautious on OCBC over its Wing Hang Bank integration risks.

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