The share prices of banks may stay rangebound given the rate hike cycle is largely behind us. This is reflected in their price charts.

Interestingly, Oversea-Chinese Banking Corp (OCBC) appears to be the strongest technically, followed by United Overseas Bank (UOB).

The share price performance of DBS Group Holdings may continue to be underwhelming. This is probably because DBS had a sterling performance in 2022 in both share price and net profit.

In FY2022 ended December 2022, the net interest income of DBS rose by 40% y-o-y while those of OCBC and UOB rose by 31% each. Net profits of DBS, OCBC and UOB rose 20% to $8.1 billion, 17.9% to $5.9 billion and 18% higher to $4.8 billion respectively.

Analysts believe that the largest of these net interest income and net interest margin (NIM) gains are over for the time being. “The pace of NIM expansion has started to moderate and plateau. We also expect residential mortgages to be held back by customer repayments triggered by higher interest rates. The pace of NIM expansion on a sequential basis has moderated as the cost of deposits has crept up due to competition for fixed deposits,” notes UOB Kay Hian, in a note referring to DBS. This holds for all three banks.

“We expect Singapore banks to report a modest set of earnings in 1QFY2023. We think that share price movement will likely be driven by any changes in management outlook on credit demand, risk appetite and asset quality, as investors pivot away from focusing on margin expansion,” notes a CGS-CIMB report.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/right-timing/no-let-either-spread-between-us-and-local-risk-free-rates-or-upward-trend?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>No let-up in either spread between US and local risk-free rates or upward trend</a>

The outlook for NIMs may be slightly different for all three banks because of the timing of loan refinancing and their funding profile. Nonetheless, it must be said that all three banks have been competing for deposits. Interestingly, the highest deposit rates were from qualifying full banks such as Standard Chartered, the likes of Citibank Singapore and the Malaysian banks in Singapore.

“We believe loan growth across banks likely stayed muted due to a combination of weak investment sentiment, continued loan repayments and banks being selective,” says CGS-CIMB’s curtain raiser for the bank’s 1QFY2023 results.

For DBS, CGS-CIMB reckons that there could be a bit more NIM upside, but not much. “We expect DBS to post 1QFY2023 net profit of $2.3 billion (–2% q-o-q, +27% y-o-y),” the report says. Such a modest profit figure is unlikely to get DBS to a net profit of $10 billion this year. “Loan growth was likely modest — we expect 1% growth q-o-q, driven by corporate loans as consumer demand was subdued,” CGS-CIMB adds. With its loan book more or less repriced, the NIM expansion of DBS will probably indicate very modest growth.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/capital/right-timing/equity-markets-dictated-rising-risk-free-rates?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>Equity markets dictated by rising risk-free rates</a>

While some analysts believe that wealth management can make up for the plateauing of NIM,  others think that there could be a risk-off among the rich due to banking sector fallouts during March with trouble in the regional US banks, and the spectacular takeover of Credit Suisse.

Despite the strong inflows of monies into Singapore, private banking customers may not be putting those monies to good use yet. However, this could provide dry powder into wealth management products when risk-averse sentiment abates.

“Although DBS likely benefited from strong wealth inflows given acute banking sector volatility over 1Q2023F, wealth management income could stay soft as negative risk sentiment persists,” CGS-CIMB says.

More likely, investors would be staying razor sharp over the local banks’ guidance on credit quality.

CGS-CIMB expects OCBC to post a net profit of $1.55 billion, up 19% q-o-q, and 14% y-o-y. This could be on account of Great Eastern Holdings’ mark-to-market recoveries.

UOB is expected to record a net profit of $1.5 billion, up 8% q-o-q and 67% y-o-y in 1QFY2023, CGS-CIMB reckons. “In contrast to peers, we believe that loans contracted 1% q-o-q in the first quarter, amid muted demand and more corporates paying down their debt. NIMs likely contracted as higher funding costs were priced in while asset yields stayed flattish,” CGS-CIMB says.

https://s3.ap-southeast-1.amazonaws.com/www.theedgesingapore.com/public/usr/8azncs/c6413d-1083-DBS-.jpg

https://s3.ap-southeast-1.amazonaws.com/www.theedgesingapore.com/public/usr/8azncs/78e0c5-1083-OCBC.jpg

Share price performance of banks muted as NIMs reach plateau

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