SINGAPORE (June 28): RHB is maintaining its “neutral” stance on Singapore’s banking sector as Credit Bureau Singapore (CBS) data reflected a 20% q-o-q increase in 1Q17 loan applications, which the research house says is a positive for Singapore banks with a greater percentage share of housing loans.

These are namely Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB), which have a 26.7% and 27.1% of share of housing loans respectively.

“We believe these two banks could record stronger housing loan growth in subsequent quarters, which would help drive their respective 2017F and 2018F loan expansion,” says analyst Leng Seng Choon in a Wednesday report.

Separately, Leng says he is positive on MAS’ Tuesday announcement that it intends to allow banks in Singapore to invest in digital consumer platforms, as he believes it provides scope for the Singaproe banks to complement their respective core financial businesses.

(See also: MAS to loosen regulatory barriers for banks carrying on permissible non-financial businesses)

The research house’s top pick remains UOB, which has a price target of $25.95, for its widening nominal interest margin (NIM) and balance sheet strength.

Both OCBC and DBS Group have been rated “neutral” by RHB with the respective price targets of $10.15 and $20.50.

“Besides the above news flow on strong mortgage loan applications being a positive for UOB, the bank has also recorded q-o-q growth in net interest income, outstripping that of its peers for three consecutive quarters,” says Leng.

“We expect the upcoming hikes in US Federal Reserve rates to widen UOB's NIM going forward. In addition, UOB has a robust balance sheet, as evident from its loan loss coverage of 117%, which is way above the peer average of 102%.”  

As at 11.50am, shares of UOB, OCBC and DBS are trading at $22.94, $10.73 and $20.26 respectively.