Maybank Kim Eng stays negative on Singapore banks

MAYBANK Kim Eng (MKE) has maintained its negative outlook on Singapore banks for the third quarter this year, saying it expects net interest margins (NIMs) to remain weak ahead of Q3 trading updates by the trio of local lenders in early November.

Separately, Maybank Investment Banking (MIB) has a neutral stance on Malaysia banking, citing that repayment capacity across the Causeway remains manageable at this stage.

MKE analyst Thilan Wickramasinghe wrote in a research report last Friday: "While the sector has been aggressively shifting its funding mix towards a low cost CASA (current account savings account) bias, expect NIM pressures to remain as loans continue to price downwards."

He added that the Singapore Interbank Offered Rate (Sibor) fell 15 basis points (bps) during the third quarter, which is less than the 46 bps-drop in Q2.

Meanwhile, loan growth should remain positive supported by regional lending, especially in North Asia and through participation in government programmes, MKE noted.

The brokerage expects cost-to-income ratios to remain flat quarter on quarter (q o q), as weaker revenues offset any savings from government wage support schemes.

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MKE's latest report comes ahead of trading updates from the local lenders early next month. UOB will report its Q3 trading update on Nov 4, followed by DBS and OCBC the next day.

MKE said that non-performing loans among Singapore banks should tick up, albeit more slowly due to moratoriums. "We expect provisioning costs - while remaining high - to see q-o-q deceleration," it said.

As for non-interest income, rising economic activity and branch openings post the lockdowns in H1 should translate to positive momentum in wealth management fees as well as credit card spending, MKE said, noting that trading income may also be buoyant.

The brokerage added that it will watch out for management guidance on moratorium trends as well as risks of dividend caps possibly extending to fiscal 2021.

"Stronger fees and lower credit charges may position DBS with the highest potential of surprising on the upside, while UOB with the least," MKE said.

Over in Malaysia, MIB noted in an Oct 14 research note that the financial stability review for H1 2020 by Bank Negara Malaysia (BNM) says financial repayment capacity remains manageable, although financial stress among households and businesses has increased.

MIB has maintained "buy" calls on Hong Leong Bank, Hong Leong Financial Group, RHB Bank, AMMB Holdings and BIMB Holdings.

Of the two million customers engaged by banks by end September, there have been 514,000 applications from households and small and medium-sized enterprises to reschedule or restructure (R&R) their loans, at a 98 per cent approval rate; there have been 3,400 applications from corporates, MIB noted. It added that 40 per cent of the R&R has taken the form of deferred payments, while the rest have been through reduced repayments.

MIB analyst Desmond Ch'ng said: "The banking system's exposure to vulnerable sectors is about 16 per cent of total loans. Positively, repayments post moratorium are currently at 69 per cent of levels prior to the moratorium."

BNM's stress test projects the system's gross impaired loans ratio to peak at 4.1 per cent in 2021, MIB reported.

Nonetheless, "Common Equity Tier 1 would remain comfortable, declining just 3.1 percentage points from current levels", it added.