What sets Singapore banks apart from Credit Suisse: Phillip Securities
PHILLIP Securities said it remains positive on Singapore banks despite the recent collapse of Swiss banking giant Credit Suisse, resulting in a government-brokered takeover by rival UBS.
The research house maintained its sector “overweight” rating on Monday (Mar 20) with an emphasis on attractive dividend yield projections of 5.7 per cent. It also sees potential upside from excess capital ratios and the push towards higher return on equity (ROE) by Singapore banks.
Analyst Glenn Thum noted that while Singapore banks’ capital and leverage ratios are comparable to those of Credit Suisse, the local banking trio has managed to remain profitable with a positive ROE of about 12.5 per cent, versus Credit Suisse’s negative ROE of 16.1 per cent.
This is because a larger proportion of profitability comes from net interest income (NII) for the Singapore banks, he said, while Credit Suisse’s focus is on commissions and fee income.
“Credit Suisse is subjected to the Liquidity Coverage Ratio (LCR) requirements by the Federal Reserve and has kept an adequate LCR of 144 per cent, which is comparable to that of Singapore banks at about 144 per cent. The issue with what is happening at Credit Suisse does not appear to be its capital ratios,” observed Thum.
While Credit Suisse reported two consecutive years of net losses due to waning investment banking revenues as well as a loss of wealth management clients, Thum noted that Singapore banks have been posting record revenues and profits, due to higher NII in a higher interest rate environment.
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“The local banks were able to benefit from the rise in interest rates as they were able to pass on the higher funding costs directly to their customers as the majority of the loans were on a floating rate and could be repriced,” he elaborated.
Amid market speculation which likens Credit Suisse’s fate with that of the 2008 collapse of Lehman Brothers, Thum highlighted the Swiss bank’s smaller asset size and total liabilities versus its American counterpart.
“However, Credit Suisse has a larger amount of customer deposits of US$252 billion, as compared to Lehman Brothers’ customer deposits of US$29 billion.”
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