Singapore banks' earnings growth to be a measly 1-2% in 2013
Check out how DBS, OCBC, and UOB fared in 4Q12.
According to CIMB, DBS fell short of expectations. OCBC and UOB beat expectations, albeit due to unconvincing factors. DBS fell short as margins contracted more than expected while costs and allowances climbed.
Here's more from CIMB:
DBS said its 4Q miss was a timing issue, as the pickup in loans only came through late in the quarter and 4Q took the hit from higher general allowances as the loans came in, but did not enjoy the full quarter of interest income.
Adding to that, there was the seasonal weakness in some fee streams while some one-off costs also came through. Its guidance suggest that 1Q13 would be better. DBS remains our top pick of the sector.
For OCBC and UOB, both beat expectations but it is not a convincing performance to suggest that the performance will spill into 1Q13. OCBC enjoyed a good quarter from trading and insurance; to a lesser extent, wealth management.
UOB beat expectations due to lower taxes and general allowances write-backs i.e. a low-quality beat. Worrying, the single credit that pushed up credit costs in 3Q carried on into 4Q, bumping up specific provisions.
We upgraded UOB from Underperform to Neutral post-results, not because the results were impressive but because the stocks’s ytd underperformance leaves less room to be negative.
Looking ahead, we forecast sector earnings growth to be only 1-2% for 2013. The banks guide for 6-10% loan growth. NII could be flat as falling margins douse some of the volume impact.
Margins should still contract in 1H13, though NII upside exist later the year if the yield curve steepens convincingly. Meanwhile, the inflated non-interest income base in 2012 leaves a higher hurdle to beat.
The saving grace to counter single-digit topline growth is muted cost pressure and relatively benign asset quality. At 1.1-1.2x CY13 P/BV, downside looks capped though the lack of earnings growth means that the banks are unlikely to perform convincingly.