UOB, OCBC to benefit from mortgage rate hikes this year, says DBS

UOB, OCBC to benefit from mortgage rate hikes this year, says DBS

Chan Chao Peh
02/04/19, 05:33 pm

SINGAPORE (Apr 2): DBS Vickers Securities is remaining bullish on Singapore’s banks as a dividend yield play, while highlighting rising mortgage rates as the sector’s bright spot amid higher cost of funds this year.  

In a Tuesday report, analyst Lim Rui Wen says UOB will benefiting from hikes in mortgage rates in 1Q19, as it was the first to increase it Singdollar fixed deposit rates during February this year.

According to UOB, its mortgages based on fixed deposit rates may grow up to 70 basis points.

This is compared to OCBC Bank, which announced average hikes of 55 basis points back in December 2018, effective from Jan 2019. DBS, on the other hand announced an increase of up to 40 basis points with effect from April.

Lim has “buy” calls on both OCBC and UOB with the respective price targets of $12.90 and $29.20.

In her view, the two banks are trading at undemanding valuations of just over 1 times FY19F book value, and are well-supported by relatively generous dividend yields of more than 4%.

While Singapore interbank offered rates (Sibor) are going up as well, the analyst notes that there is typically a lag between repricing and Sibor – meaning that the banks are able to enjoy a period of wider margins.

She estimates that between 40 to 45% of the banks’ Singdollar loans are based off Sibor and the swap offer rate.

Going forward, DBS expects Singapore’s GDP to grow at between 2.8-3% this year and the next to support mid-single digit growth in banks’ earnings.

This will be further buoyed by continued NIM expansion through FY19F on further loans repricing, says Lim, although she remains cognisant that loan growth is expected to moderate to c.4-6%, hinging on non-trade corporate loans and regional loan demand.

“Singapore banks remain as decent dividend yield play amid strong capital levels, benign asset quality with mid-single digit earnings growth and will likely trade range-bound up till ex-div dates. In the meantime, we continue to keep watch on developments in oil and gas provisions,” says Lim.  

Shares in OCBC closed 14 cents and 32 cents higher, respectively at $11.35 and $25.74 on Tuesday. 

US sanctions on Huawei could backfire

SINGAPORE (May 27): It was only to have been expected. After nearly a year of pressure that failed to stop Huawei Technologies Co’s expansion -- especially in the rollout of the next generation 5G wireless network globally -- in its tracks, US President Donald Trump signed an executive order effectively barring American firms from doing business with the Chinese telecommunications equipment company. The inclusion of Huawei on the US Department of Commerce’s Bureau of Industry and Security’s (BIS) Entity List means that companies would need to apply for a waiver to supply goods with 25....

Annica chairman Ong quits just as $33 mil goes missing at his law firm JLC

SINGAPORE (May 27): Jeffrey Ong, managing partner of law firm JLC Advisors, may have given instructions to pay out a sum of $33.2 million held in escrow by his firm for a client, Allied Technologies. According to Allied’s statement filed with Singapore Exchange on May 23, the payment may have been “unauthorised”, citing a letter it received from JLC on May 22. Allied’s statement did not specify who the payment was made to. Ong also abruptly resigned as non-executive chairman of Annica Holdings on May 20. In a May 22 filing with SGX, Annica CEO Sandra Liz Hon Ai Ling said Ong resigne....

SGX RegCo sees targeted approach in enforcement, more powerful market discipline

SINGAPORE (May 27): Tan Boon Gin, CEO of stock exchange regulator Singapore Exchange Regulation, says the market can expect a stronger regulatory presence. “You will see a series of enforcement cases coming up quite soon,” he tells The Edge Singapore. Tan’s assertion comes amid significant changes in the market as sentiment remains lacklustre and investors’ expectations change. The local stock market has gone through significant upheaval, not least because of the penny stock crash in 2013 that wiped out some $8 billion in value from the market. The event dented investor sentiment, a....