瑞信-亚太地区-银行业-新加坡银行业：运行安全-530-39页.pdf
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DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST
CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit
Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware
that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report
as only a single factor in making their investment decision.
30 May 2019
Asia Pacific/Singapore
Equity Research
Banks
Singapore Banks Sector
ASSUMING COVERAGE
Research Analysts
Nicholas Teh
65 6212 3026
nicholas.teh@credit-suisse.com
Kylie Wan
65 6212 3004
kylie.wan@credit-suisse.com
Flight to safety
Figure 1: Risk-reward most favourable for UOB
S$24.49
S$11.37
S$23.52
UOB OCBC DBS
Downside to "grey sky" Upside to "base case" Current price
Base case = S$29.7
(+22% upside)
Base case = S$11.9
(+9% upside)
Base case = S$28.4
(+14% upside)
Grey sky = S$23.1
(5% downside)
Grey sky = S$9.2
(16% downside)
Grey sky = S$21.7
(13% downside)
Source: Company data, Credit Suisse estimates
■ Decent risk-reward. With slowing economic growth and uncertainty over
interest rate direction, our base case assumes flat-to-declining ROEs for
Singapore banks in 2019-21E. In our view, DBS and UOB have the most
levers to drive higher NIM from 1Q19 levels, with key risks being higher
loan competition mitigating pass-through of higher rates and potential US
rate cuts. By our estimates, a 50 bp reduction in the US rate would affect
DBS the most (-7.5% to net profit), then OCBC (-5.7%), and UOB (-4.7%).
Our grey-sky analysis suggests that potential earnings cuts are partially
priced in, particularly for UOB, where there might be just 5% further
downside should there be no loan growth, flat NIM, and higher credit cost.
■ UOB should have the least volatile NOII. Capital-market-related non-
interest income (NOII) is the lowest for UOB (16% vs 18-21% for
DBS/OCBC in 2018)—hence UOB should be less susceptible to swings in
market sentiment. Trading income is the most volatile component of NOII.
While trading income is the largest contributor to DBS' earnings, it exhibits
most volatility for OCBC.
■ Switch to UOB. We assume coverage of Singapore banks. UOB
(OUTPERFORM, TP S$29.70) is our top pick, as it has the most stable
earnings base and least volatile NOII, and offers the best risk-reward in
different scenarios. We see DBS (OUTPERFORM, TP S$28.40) providing
the most certainty on dividends (4.8% yield), with its long-term digital
strategy intact. We expect OCBC's (NEUTRAL, TP S$11.85) ROE to see a
declining trend moving forward on its build-up of excess capital to address
volatility in the macro environment and potential acquisition opportunities.
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