Will Singapore banks break hearts with bad results on Valentine's Day?

Especially with the easing of debt servicing burden.

According to OSK DMG, the Monetary Authority of Singapore (MAS) has broadened the existing exemption from the total debt servicing ratio (TDSR) to ease the financing burden of borrowers who purchased owner-occupied
residential properties and/or investment properties, before the introduction of TDSR.

"While a welcome relief for some borrowers, these exemptions are unlikely to stem the decline in new property transactions," it said in a report.

Singapore Business Review dug deeper into the issue and sought experts' opinion on how this may affect Singapore banks' upcoming results announcements on February 14. Here's what the experts thought:

OSK DMG:

In a move to ease the burden of borrowers who face challenges refinancing loans for owner-occupied properties bought before the introduction of the total debt servicing ratio rules on 28 June 2013, the MAS has decided to broaden the existing exemption from the TDSR threshold of 60%. The exemption is extended to the following:

1. Refinancing of owner occupied property loans. A borrower who purchased a residential property before the introduction of TDSR rules will be exempted as long as he/she occupies the residential property that is being refinanced. The mortgage servicing ratio of 30% of gross monthly salary will also not apply to the refinancing of loans for HDB flats and executive condominiums that are owner-occupied and purchased before 12 Jan 2013 and 10 Dec 2013, respectively. Borrowers who purchased residential properties before the implementation of loan tenure limits of 30 years for HDB flats and 35 years for other residential properties will be allowed to maintain the remaining tenures of their loans.

2. Refinancing of investment property loans. The MAS will allow a transition period until 30 June 2017 for a borrower to refinance his/her investment property loans above the 60% threshold provided that the Option to Purchase of the property was granted before 29 June 2013 and that the borrower fulfills the financial institution’s credit assessment.

3. To ease pressure on borrowers, but unlikely to lift demand. The above exemptions should bring relief to borrowers looking to refinance property loans taken pre-TDSR rules. However, without the loosening of cooling measures on new property transactions, we expect property-related lending would continue to moderate in the months ahead. Growth in DBS housing loans has slowed to 9.5% in 2013 following the slew of property cooling measures.

Sharnie Wong, CA, & Chen Wang, analysts, Barclays Bank:

The three Singapore banks will all report FY13/4Q13 results on 14 Feb – DBS and OCBC before market open, and UOB after market close. We expect revenue growth to be  driven by loan growth of ~3% q/q (17% y/y for the three banks combined) and stable margin but partially offset by weaker markets-related income.

We also expect slightly higher credit cost q/q and seasonally higher operating expenses. DBS (OW) remains our top pick, given its strong deposit franchise and positive leverage to rising interest rate. Reasonably strong loan volumes and stable margin trends: We revenue growth to be driven by reasonably strong loan growth in 4Q of 3% q/q (although slower than system growth of 5.9% q/q) driven by corporate, trade and non-housing retail loans.

Margins will likely remain stable, in our view, as downward loan repricing (mortgages and corporate loans) is bottoming out, offset by slightly higher funding cost driven by some deposit competition.

Markets-related income affected by weaker investor sentiment: We expect fee income to be broadly flat q/q, on weaker market-related income (wealth management, brokerage and funds management) offset by steady growth in loan/credit card and trade related fees. The Straits Time Index was flat in 4Q13, but daily average turnover fell 25% q/q to less than S$1bn.

We expect profit contribution for OCBC from its life insurance subsidiary, Great Eastern, to remain volatile from changes in value of its bond investments. Earnings estimate changes: We lower our earnings forecast for UOB and OCBC marginally by up to 2.2% to reflect lower markets-related income, though offset by slightly higher loan growth. For DBS, we raise our earnings forecast by ~6% to reflect a one-off S$447m gain on disposal of its stake in the Bank of the Philippine Islands (BPI), half reflected in 4Q13 and half in 1Q14. Our price targets are unchanged. 

Key things to watch: 1) Guidance on 2014 growth expectations, in particular loan growth which may potentially surprise on the upside in our view, driven by demand from corporates; 2) potential for higher dividends for DBS going forward (vs current
guidance of 56c per year) and lower dividend payout for OCBC pending the acquisition of Wing Hang Bank which will be a drag to capital; and 3) views on the impact of tapering on bank operations, funding and loan to deposit ratio.

Kenneth Ng, CFA, & Jessalyn Chen, analysts, CIMB:

Singapore banks’ share prices have slipped in 2014, more in anticipation of credit and liquidity strains spilling over from the emerging economies, than
on any concerns over a seasonally weak 4Q. We expect the banks’ 4Q13 to be similar to 3Q13 – flat NIMs, a pick-up in US$ loans, muted credit costs growth, albeit with lower non-interest incomes and seasonally higher cost ratios.

Any positive surprises are likely to come in loan volumes. We maintain our Overweight rating on the sector with DBS as our top pick. Potential re-rating
catalysts are a rise in lending spreads, as older loans mature.

The guidance means that the 3Q13 trends are likely to continue. We expect to see flat NIMs, seasonally lower non-interest income and slight NPL upticks. Cost ratios are likely to inch up as income slows. The banks chased US$ deposits in 3Q, in anticipation of a tightening in the dollar liquidity.

We doubt that they would let their dollar deposits fall in this environment. More likely, they will let their S$-fixed deposit shares erode. On system loans
data, we note a big pick-up in agriculture and commerce loans in 4Q. These are most likely US$-loan opportunities and compensate for the drastically slower mortgage growth. The banks are likely to see stronger business loans.

What can go wrong? We are not too concerned that the credit costs might spike in 2014. We are more worried about the slow grind of funding cost
pressures and slower wealth management and capital-markets fees.