Citi's rare 'sell' call on Singapore banks returns to 'buy' herd

ONE of the rare "sell" calls on the Singapore banks has returned to the herd, as Citi Research on Monday upgraded its call on the sector to a "buy".

The bank-brokerage said the markets may be pricing in a V-shaped recovery in 2021.

"Despite multiple concerns over Singapore's economy and likely dire 2020 expected profits, markets may price a V-shaped recovery in 2021, (with) banks seen as a proxy," said analyst Robert Kong.

He raised the target price for OCBC to S$10.85, up 40 per cent from S$7.75 previously. The target price for UOB was raised to S$25, up 39 per cent from S$18, while that for DBS was raised to S$25.50, up 29.8 per cent from S$19.65.

Shares of Singapore banks were trading higher on Monday. At the trading lunch break, DBS was up 42 Singapore cents to S$22.70, OCBC was up 19 Singapore cents to S$9.63, and UOB was up 48 Singapore cents to S$22.48.

Mr Kong referred to the views of Citi's economists in the US, who said that rising long-term interest rates and a weakening greenback are signalling that earlier forecasts for the strength of post-Covid-19 recovery have been "too pessimistic". They added that "ample liquidity from the Fed will prevent a financial crisis".

To be sure, Mr Kong said that Singapore banks' earnings in the second quarter of this year is likely to show the "true weakness of the lockdown period", citing soft loan growth, collapses in net interest margins, and weak fees. Singapore banks are also facing a lower-for-longer rates environment.

Mr Kong noted as well that there will be "lasting damage" to some segments of the economy as banks continue to shore up provisions in anticipation of rising non-performing loans. Singapore's economic recovery could also prove "more fragile than markets expect", while another wave of infections could lead to more lockdowns.

Citi previously downgraded the Singapore banks to "sell" in March. Bloomberg data on Monday showed that most analysts are taking "hold" or "buy" calls on the Singapore banks, with "hold" calls just edging higher in numbers for now.