■ ASEAN and Greater China key drivers of NPL growth, but better than market worries
In this report, we provide a snapshot of the various asset quality related disclosures provided by the banks and highlight the key developments during the quarter. ASEAN and Greater China continue to be the key source of new NPLs (and incremental P&L provisions), even though level of asset quality deterioration was better than market worries. In terms of industry segments, performance of the commodities book was more resilient than expected, with O&G services seeing some deterioration.
■ OCBC has the least cushion to handle asset quality normalisation
DBS and UOB have been the most conservative in terms of discretionary provisioning policies so far this cycle. DBS and UOB are keeping their overall P&L provisioning levels relatively stable, but are shifting the mix more towards specific provisions. But OCBC (least conservative provisioning this cycle) is seeing a P&L bigger drag as higher NPL growth increases need for specific provisions, its NPA coverage levels have fallen the most this quarter.
■ DBS top pick; asset quality key stock price driver near term
While the start of the US rate hike cycle could finally trigger a long-awaited turnaround in NIMs and boost top-line growth, asset quality is likely to hog the limelight. DBS remains our top pick in the sector—has better earnings momentum (biggest beneficiary of rising rates) and lower asset quality risks (no ASEAN risk). A worse-than-expected asset quality environment is likely to affect OCBC the most, given it has the least provision cushion. (Read Report)
Source : Credit Suisse Asia Pacific Equity Research