As net interest margins (NIMs) fell in 3Q2020 due to subdued interest rates, NIMs in 4Q2020 are expected to remain at 3Q2020 levels, for a full-year average of 1.60%, says Tay.
4Q2020, as well as the three-month Singapore Interbank Offered Rate (3M-SIBOR) and three-month Swap Offer Rate (3M-SOR) of 0.41% and 0.18% were 35 basis points lower than that of levels at 9M2020.
For more stories about where the money flows, click here for our Capital section
“Current 3M-SOR is up 3 basis points from the average observed in 4Q2020. 3M-SIBOR is at its 4Q2020 average. Despite low interest rates, rate stability should provide opportunities for banks to better price asset yields to boost margins in FY2021,” he adds.
Loans contracted 2.32% y-o-y in November, further extending the sector’s weak outlook. In October, loans declined 2% y-o-y.
See also: Aletheia Capital starts Info-Tech at ‘buy’, expecting $18 mil ebitda in FY2025
Business loans performed poorer than consumer loans for the first time since 2018, shrinking at 2.66% y-o-y.
Consumer loans, in comparison, declined 1.76% y-o-y. M-o-m, consumer loans grew 0.42%, making it their fifth consecutive month of growth.
The higher consumer loans were attributed to credit-card loan growth of 0.3% m-o-m.
To this end, Tay has also maintained the three local banks, DBS, Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank Limited (UOB) at “neutral” with target prices of $22.60, $9.68 and $21.10 respectively.
His picks for sector exposure are SGX for its sustained market participation and UOB for its lower specific provisions (SPs) and better credit outlook.
For more stories about where money flows, click here for Capital Section
Capital-market securities daily average value (SDAV) and derivatives daily average volume (DDAV) grew 14% and 11% respectively in December, which augurs well for SGX, notes Tay.
This puts SDAV up 19% y-o-y for 1HFY2021.
“With sustained levels of market participation, we expect SGX’s revenue to increase 10-15% y-o-y in 1HFY2021,” says Tay.
Tay has rated SGX at “accumulate” with a target price of $9.45.
Shares in DBS, UOB, OCBC and SGX closed $25.18, $22.56, $10.09 and $9.60 on Jan 6.
