• Previous property cooling measures caused loan growth to half from a high of 16% after a year; banks’ share prices did not correct sharply as business loans stayed strong
• Downgrade banks to HOLD; TPs for UOB and OCBC lowered to S$28.30 and S$12.20 respectively on earnings revision of c. -1% to -5% over FY18-19F
From peak to trough. The Singapore government has raised the Additional Buyer’s Stamp Duty (ABSD) and Loan-to-Value (LTV) limits on residential property purchases, to cool the property market and keep price increases in check. ABSD rates for Singapore citizens and Singapore permanent residents purchasing their first property will be retained at 0% and 5% respectively, raised by 10% (from 15%) for entities, and ABSD of 5% has been introduced for developers purchasing residential properties for housing development. Separately, LTV limits will be tightened by 5% (refer to table for details) for all housing loans granted by financial institutions (not applicable to HDB loans). Changes will be effective from 6 Jul 2018. With rising interest rates, we gather that the government is trying to instill caution to property buyers to avoid over-leveraging. Property prices started to rebound after the government relaxed the Seller’s Stamp Duty (SSD) in Mar 2017, and prices have increased by 8-9% while transaction volumes rose by 40% since then.
2Q18 earnings should still be positive; potential profit taking risk post results. Singapore banks are over-owned by investors’ vs other ASEAN Banks based on our checks, at least since the middle of 2017. The slightest negative news, would easily prompt a sell down. We saw the first leg of sell down post 1Q18 results where we believe investors started to take profit. Newsflow on weakness in the power and water sector had led to some degree of cautiousness. We believe investors could hold on a little longer for the upcoming higher interim dividends. We expect 2Q18 earnings to remain positive, supported by sustained NIM uptrends and low credit costs. But 2H18 might see the tide turn, especially in loan growth.
Turning cautious. Loan growth sentiment will be dampened from here as this is currently driven largely by property development companies. Mortgage growth might still stay relatively stable over the next few quarters from existing drawdowns. The property cooling measures would likely take a hit on UOB, which is most exposed to property-related lending. We cut 2018 loan growth to 7% (from 8%), and to 6% (from 7%) in 2019. We downgrade both OCBC and UOB with revised TP of S$12.20 and S$28.30 respectively, with earnings revision of c. -1% to -5% through FY18-19F. We expect NIM to stay on an uptrend, in line with SIBOR/SOR although re-pricing effect remains a risk. Near term, we expect wealth management income to remain a key driver. Banks remain vigilant in controlling costs. Post SFRS9, banks’ credit cost levels are expected to normalise (lower) in the absence of the oil & gas woes. However, should property sales decline significantly leading up to completion, there may be downside risks on loans to developers’ bank loans in 2 to 3 years’ time.
Source : DBS Group Research
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