DBS Group Research analyst Lim Rui Wen has recommended investors to “buy” shares in United Overseas Bank Limited (UOB) and Oversea-Chinese Banking Corporation (OCBC) ahead of their 4QFY2020 and FY2020 results release in February.

See Lim's take on the Singapore banking sector here.

OCBC will be releasing its results on the morning of Feb 24, while UOB will be announcing its results on the morning of Feb 25.

Seeing UOB as a proxy to economic recovery, Lim expects the bank to report a y-o-y rebound in earnings due to stabilising net interest income (NII) and lower provisions.

Management has previously guided for better-than-expected asset quality outlook at its 3QFY2020 results briefing.

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“We expect return on equity (ROE) to recover to around 9% minimally by FY2022,” says Lim, on UOB.

“We believe UOB’s strong non-performing asset (NPA) coverage of 111% (2QFY2020: 96%) and ongoing provisioning (management guides for $2 billion to $3 billion through FY2020 to FY2021) should limit downside risks, and expect management to continue putting through provisions in 4QFY2020,” she adds.

Lim also expects UOB’s net interest margin (NIM) for the 4QFY2020 to be “stable” amid muted credit demand.

She highlights that “UOB was the only bank to see q-o-q NIM improvement in 3QFY2020” and that UOB’s “4QFY2020 NIM should be stable to slightly positive as UOB continues to lower its cost of funds, amidst muted credit demand, which should provide support for net interest income”.

As Lim views that there is more room for UOB’s share price to increase amid expectations of a gradual pick-up in long-end yields, she has increased her target price estimates for the bank to $26.80 from $24.80 previously.

Lim has also upped UOB’s earnings estimates as she foresees provisions to be lower during the quarter.

For OCBC, Lim says she looks forward to the bank’s earnings growth in FY2021, and that there is room for its share price to re-rate.

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“While there may be further NIM headwinds into 4QFY2020/1QFY2021 as OCBC’s loan book continues to reprice, its strong non-interest income franchise should provide some income support for FY2021 amidst lower provisions expected in FY2021,” she writes.

The bank’s active provisioning, which is expected to continue in 4QFY2020, is likely to limit downside risks, she notes.

Touching on the bank’s recent change in group CEO, Lim believes that updates from the new management’s take on capital management and a broader strategic direction will be “welcomed by investors”.

While Lim remains conservative over OCBC’s income outlook for FY2021 and FY2022, she believes that “management is likely to continue adopting strict cost discipline to manage its bottom line”.

Lim has also upped OCBC’s target price at $11.90 from $11 previously.

As at 3.23pm, shares in UOB and OCBC are trading 33 cents higher or 1.4% up at $23.66 and 20 cents higher or 1.9% up at $10.59 respectively.