Top Banks Windfall

Singapore’s three largest banks are anticipated to report improved earnings as the global economy recovers from the Covid-19 pandemic, said analysts. 

The banks are to release first-quarter earnings in the coming days. The largest of the trio, DBS Group Holdings, will be the first to release its earnings, while smaller banks United Overseas Bank and Oversea-Chinese Banking Corp will release their reports on May 6 and May 7, respectively

Investors seemed to be more optimistic about the banks’ prospects, with all three stocks achieving more than 15% this year as of Friday’s close — beyond the benchmark Straits Times Index, which increased about 12.3% in the same period.

Krishna Guha, an equity analyst at investment bank Jefferies, said in a report this month that a better earnings outlook could send the city-state’s bank stocks higher.

The analyst has a “buy” rating on all three banks and increased his price targets for them in early-April.

DBS: 33 Singapore dollars, implying an upside of around 14% from Friday’s close.

OCBC: 13.50 Singapore dollars, which is a 13% upside.

UOB: 29.50 Singapore dollars, an upside of 12%.

Guha said growth in the banks’ loans business is picking up, while lending margins may recover. Buoyant deal-making activities in the financial markets could also boost service fees for the banks.    

David Lum, an analyst at investment bank Daiwa Capital Markets, said he’s “positive” on Singapore banks — and less bullish on the sector compared to many of his counterparts.

Lum said in a report this month that net interest margins — a measure of lending profitability — would remain weak even as bank earnings recover. He explained that competition in the Singapore housing loan market is one factor that could keep a ceiling on lending margins.

The banks’ shares also look “close to fully valued,” said Lum.

Daiwa’s top choice among the three Singapore banks is OCBC, which it rated “outperform.” Both DBS and UOB have a “hold” rating.

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