Asean banks have a “long road to recovery”, say Maybank analysts, including Thilan Wickramasinghe and Kareen Chan, downgrading the sector to “negative” in a September 11 note. Analysts warn of Singapore experiencing “one of the strongest contractions in the region” due to its open and trade-driven economy, with DBS the preferred pick among banks in Singapore.

That said, Maybank also notes that the economic contraction here may not extend directly to the banking sector, and regional diversification into an increasingly open North Asia, coupled with strong liquidity in USD and strong capital reserves remain strengths of Singapore banks. 

Analysts point towards “massive government stimulus” here, which may cap non-performing loan (NPL) growth in the near-term, though they also warn of “significant risks” after such schemes expire. Sector NPLs are set to nearly double and credit charges nearly triple by FY21, compared to FY19.

“With borders remaining largely closed and risks of domestic mini-lockdowns causing disruption, operational green shoots are under pressure,” note the analysts of the impact of Covid-19 lockdowns on Asean countries. 

“Continued border closures and potential mini-lockdowns as responses to renewed Covid-19 infections – as seen in Jakarta this week – may keep operational recovery muted. The exception may be banks that are exposed to North Asia and have large wealth management franchises, in our view.”

Earnings momentum q-o-q remained largely negative for Asean banks in 2Q20, say Maybank analysts, with Indonesia, Thailand and the Philippines worsening substantially. Notable credit charge increases were seen across the region, they add. “Given various forms of loan moratoriums and support measures in play, there may be dislocations between real asset quality vs NPL recognition.”

As moratoriums begin to unwind (starting from 3Q20 in Malaysia), analysts expect additional asset quality pressures to surface. Banks that are domestic focused may see higher operational pressures, especially if economic activities fail to pick up pace.

As at 1.02pm, shares in DBS are trading 5 cents higher, or 09.24% up, at $20.51.


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