SINGAPORE (July 1): CGS-CIMB Securities is maintaining its “neutral” or “hold” call on all three Singapore banks.

The brokerage has placed target prices of $18.80, $8.37, $19.04 on DBS, OCBC, and UOB respectively.

These prices are lower than the counter’s Tuesday close of $20.80 for DBS, $9.00 for OCBC and $20.23 for UOB, analysts Andrea Choong and Lim Siew Khee say in their June 30 note.

Touching on their call for DBS, the duo note that the bank recorded steady loan growth of 3.2% q-o-q in 1Q20. They now expect credit costs to taper, bringing impairments due to the Covid-19 pandemic to 80-130 basis points ($3 - $5 billion) between FY20-21F.

OCBC recorded a more modest loan growth of 2% q-o-q in 1Q20. The bank is now guiding for 100-130 basis points in cumulative credit costs over FY20-21F. “Asset quality pressures are likely to be broad-based, beyond just first-order effects,” add Choong and Lim.

With a loan growth of 4% q-o-q, UOB recorded the strongest loan growth rate for the quarter. This is, as the bank “made use of its retained earnings to buff up its regulatory loss absorption buffer,” say Choong and Lim. This translated to a 36 basis point containment of credit costs.

For now, the bank is looking at impairments of 50-60 basis points over FY20-21F.

“We expect the easing of lockdown restrictions beginning Jun 20, albeit locally contained, to give some lift to credit growth in months to come,” say Choong and Lim.

However, RHB Research Securities’ economists beg to differ.

“The resumption of the economy post the circuit breaker period may contribute to a slight rise in loan growth. However, we expect loan growth to remain subdued for the preceding months due to uncertainties surrounding the recovery path of the pandemic”.

The group is now looking at a 2% dip in overall loan growth this year.

Their move follows data published on May’s bank lending on Tuesday. Bank lending in Singapore fell for the third consecutive month as both consumer and business loans took a hit from the “circuit breaker” measures restricting the operations of non-essential services throughout the month.

Consumer loans were down 2.8% y-o-y, while business loan growth moderated to +5.4% y-o-y from +8.3% in the previous month.

Total loans from the domestic banking unit – which captures lending in all currencies, but mainly reflects Singapore-dollar lending – slipped 0.6% month-on-month to $685.3 billion in May. This is down from the $689.7 billion disbursed in April.

See: Singapore's bank lending continues decline as business and consumer loans take a hit from 'circuit breaker' measures

Singapore’s broad money supply – including Asian currency units – moderated to +10.8% y-o-y, from +12.4% in the month before. This follows the fall in private credit, RHB’s economists point out. A further decline was mitigated by an increase in government deposits.

As at 2.02pm, shares of all three banks were up with DBS gaining 20 cents or 0.96% to $21.00 and UOB rising by 21 cents or 1.04% to $20.44. OCBC meanwhile was at $9.05, up 5 cents or 0.56%.