The bank has kept the multiplier of 1.8x to the bank’s risk weighted assets (RWA) for operational risk, which was imposed after the March and May 2023 incidents, the team notes.
It adds that its lowered target price takes into account its revised cost of equity (COE) assumption, which is now up by 25 basis points (bps) to 12.25%, reflecting potential risks to DBS’s earnings and further regulatory action.
“We await further details from management as to the impact from the latest round of regulatory action but the direct impact looks to involve higher operating expenses (opex) [such as] compliance cost, tech spending) and capex,” says RHB.
Citi Research’s Tan Yong Hong has kept his “sell” call and target price of $29 on DBS as he notes the positives and negatives from MAS’s response to DBS’s recent spate of service disruptions.
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The unchanged 1.8x multiplier for the bank was a positive outcome as further capital requirement will directly limit potential for any excess capital distribution, says Tan.
However, the six-month review by the MAS should “lower the probability of a meaningful excess capital distribution,” he adds. “In addition, DBS also published a roadmap that suggests additional opex. As a sensitivity, every 5% higher opex reduces earnings by 4%.”
To this end, Tan is remaining cautious on the overall banking sector in Singapore, adding that he would “trim into strength on the positive outcome from the MAS”.
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Meanwhile, of the three banks, Tan expressed his preference for Oversea-Chinese Banking Corporation (OCBC) on having the clearest pathway to higher dividends (improving 2HFY2023 profitability and excess capital).
DBS is slated to release its 3QFY2023 ended Sept 30 results on Nov 6.
As at 1.25pm, shares in DBS are trading 72 cents higher or 2.21% up at $33.38.
