DBS is expected to have the most favourable y-o-y profit momentum, a report by Macquarie on Singapore banks in 3Q2024 states.
In a report released on Oct 18, Macquarie analyst Jayden Vantarakis is of the opinion that DBS is the only bank poised to declare a dividend this quarter and is likely to be accruing capital after another quarter of benign growth and strong profitability.
“Lifting the dividend would signal the bank is confident in its capital position, even post-Basel IV,” Vantarakis notes. He does not believe that a raise is in consensus numbers and is of the view that many investors were disappointed an increase did not occur in 2Q2024.
Vantarakis expects wealth fees to increase 35% y-o-y for the DBS, OCBC and UOB, supported by a favourable base for DBS.
US bank earnings, which Vantarakis notes is a good indicator of the direction of trading income for Singapore banks, shows a strong base for 3Q2024.
Overall, his non-interest income expectations are 4% above the visible alpha consensus and he is ahead for DBS, UOB on pre-provision operating profit.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents.
While Vantarakis notes that it is still too early to see the impact of the Fed rate cuts, OCBC saw downward movement in its net interest margin (NIM), which he believes will continue into 3Q2024. DBS and UOB were stable, and Vantarakis expects UOB to benefit the most from emerging markets (EM) Asean foreign exchange (FX) strength this quarter.
The transition to Basel IV started on July 1, with banks presenting both transitional and fully loaded common equity tier 1 (CET1) ratios for the first time in 3Q2024.
Vantarakis estimates that transitional ratios will be materially higher given the widespread use of foundation internal ratings-based (F-IRB) models. However, he expects the fully loaded ratio impacts to benefit UOB the most, by around 1.0 percentage points (ppt) on a permanent basis.
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
Vantarakis expects UOB’s Citi retail integration costs to be reduced by half, around $30 million post-tax, and this appears to have been factored into consensus expectations. He expects cost/income for the OCBC and DBS to remain at less than 40%.
According to Vantarakis, Macquarie expects a benign environment.
“The only risk we are watching is UOB's Thailand exposure, with the bank having recently taken on the unsecured card portfolio from the Citi transaction,” he adds.
As such, Vantarakis adjusts the FY2024 and FY2025 estimated earnings per share for UOB to around 2%/1% to account for this, while maintaining their target price.
As at 1.34pm, units in DBS are trading 42 cents lower or 1.05% down at $39.28, units in UOB are trading 12 cents lower or 0.37% down at $32.47 and units in OCBC are trading 11 cents lower or 0.71% down at $15.29.
