For the 1Q17 ended March, net profit for the three banks accounted for 25-27% of street’s full-year estimates on higher-than-expected NOII and lower provisions. Goh says the results could prompt the street to raise earnings estimates, in anticipation of better earnings in coming quarters on the back of an expected rise in NIM.
Meanwhile, asset quality fears are also subsiding. NPL ratios for all three banks were stable q-o-q for the first time since end 2015. While there remains some stress in the O&G sector, the banks find the situation more manageable. Credit cost for the banks was stable to lower q-o-q. New NPL formation for DBS and OCBC improved q-o-q and was stable for UOB.
“New NPL formation is now close to 70 bp of loans for all three banks and well below the peak of 1.5-1.8%,” says Goh.
Finally, there is the possibility of more dividend upside as capital accretion over 1Q17 affords DBS and UOB the flexibility of reviewing their dividend policy.
“Management at both banks have alluded to the possibility of reviewing their dividend policy as the CET 1 ratios are now above their desired target levels,” says Goh, although OCBC's fully loaded CET 1 ratio declined to 12.2% as at end 1Q17.
Shares of DBS, OCBC and UOB are trading at $20.77, $10.40 and $23.10 respectively.
