Singapore bank stocks have declined to 7% YTD ever since they gained 9% during their all-time high this year.
OCBC Investment Research analyst Carmen Lee noted that at this year’s high, DBS was up 23%, OCBC was up 13%, and UOB was up 13%, which brought the three stocks to all-time historical highs.
“Since then, together with market softness, the banking stocks have also fallen in tandem. We think that the recent price weakness, partly due to the lull period in May and June, could also be an opportune time to accumulate,” she said.
Even if share prices have come off and the index is now off the year’s high of 1112.15 in May 2018, most of the positive drivers are still intact despite current equity market softness, Lee noted.
“The outlook is definitely improving as the banking sector saw several quarters of improvement as allowances declined, non-performing loans (NPL) plateaued, and margins started to reverse up,” she said.
In general, quarterly profitability trends have also improved. Lee noted that Q1 was a record quarter for DBS. “This was similarly the case for the other banks, stripping out exceptional items. In terms of pretax profits, the three banks reported combined total profits of $4.4b, the highest level historically,” she added.
Meanwhile, net interest margins (NIMs) moved up to a range of 1.67% to 1.84% in 1Q2018. On average, this was the fifth quarter of improvement. Dividend payout trend has also been edging up in the last decade.
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