Financial Industry 07 (Jul 18 - Dec 24)

[winston]

S&P Forecasts CN Banks' NPL Ratio to Surge to 10%

The coronavirus pandemic will deal a blow for China's banking asset quality, shoring the banks' NPL ratio up to 10% and doubling that before the epidemic, opined S&P Global Ratings.

China's banking sector had been more relaxed when it comes to handling customers' loans, offering grace periods and other relief measures to borrowers with disrupted cash flow under the plague.

S&P expected most of these loans to be booked as special-mentioned loans or even normal loans, rather than non-performing ones.

Source: AAStocks Financial News

[behappyalways]

Fed says pandemic has created U.S. financial sector fragility that will last for some time
https://www.marketwatch.com/story/fed-s ... ck_seemore

[winston]

When You See This Signal… Buy, Buy, Buy!

By Karim Rahemtulla

I have one indicator that will serve you well in this type of market…

For a longer-term buy signal, I look to the performance of these four stocks: Wells Fargo (NYSE: WFC), JPMorgan Chase (NYSE: JPM), Citigroup (NYSE: C) and Bank of America (NYSE: BAC).

Source: Investment U

https://investmentu.com/when-you-see-th ... dium=email

[winston]

not vested

Bargain hunting continues, how attractive are Malaysian banks?

by Justin Lim

KUALA LUMPUR (June 4): Bargain hunting for Malaysian banking stocks continued with Affin Bank Bhd, trading at a price-to-book value of barely 0.4 times, leading the climb this morning.

Affin Bank jumped as much as 8.09% or 14 sen to RM1.87 shortly after the opening bell today. This was followed by Hong Leong Financial Group Bhd (HLFG), which soared as much as 6% or 90 sen to RM15.90, while Hong Leong Bank Bhd gained 5.73% or 86 sen to RM15.88.

Gains were also seen in other banking stocks, with BIMB Holdings Bhd climbing as much as 4.47% or 16 sen to RM3.74, while AMMB Holdings Bhd rose as much as 4.31% or 14 sen to RM3.39.

Meanwhile, CIMB Group Holdings Bhd was up as much as 3.39% or 13 sen to RM3.97, RHB Bank Bhd jumped as much as 2.80% or 15 sen to RM5.50, Public Bank Bhd gained as much as 2.76% or 48 sen to RM17.86, and Malayan banking Bhd (Maybank) rose as much as 2.76% or 22 sen to RM8.20.

Banks trading below their price-to-book value included — based on the order of lowest valuation — Affin Bank (0.4 times), AMMB (0.54), Alliance Bank (0.67), CIMB (0.71), RHB Bank (0.84) and HLFG (0.8379) (see table).

Despite the rallies today, all banking stocks were trading downward from a year-to-date (YTD) perspective, no thanks to the Covid-19 pandemic which had taken a large toll on economic activity. CIMB lost the most, plunging 24.08% from RM5.15 in December 2019, followed by BIMB (-16.36%), AMMB (-15.35%), Public Bank (-12.65%), Hong Leong Bank (-13.18%) and HLFG (-11.83%).

Generally, the banks' performance still lagged behind the benchmark FBM KLCI index's YTD performance, down by 2.49% to 1,549.19 points from 1,588.76 last Dec 31.

The banking stocks were bogged down due mainly to the current harsh economic climate that would give rise to higher non-peforming loans and slower loan growth to drive earnings. Nonetheless, some quarters saw that the current share prices had already factored in the possible bad news.

Kenanga Research, which has downgraded the sector to "neutral", said the banking system will be hard-pressed given the downside risks as economic uncertainties continue to prevail given the inconclusiveness of the growing pandemic.

“The reopening of the economy and the recent OPR (overnight policy rate) cut have helped cleared some overhang for the sector, but the recent development of HP (hire purchase) interest will likely put further near-term pressure on banks’ income and this, by our calculations, could be meaningful,” the research house wrote in a note dated May 8.

“[As such] we have cut our FY20-21 (financial years 2020 and 2021) net profit forecasts by up to 20% for the banks under our coverage,” it added.

Similarly, Affin Hwang Capital Research expected a deterioration in banks’ earnings and non-performing loans to spike up following the pandemic outbreak. In addition, it said additional relief measures by Bank Negara Malaysia (BNM) had put pressure on banks’ liquidity and funding.

“At this juncture, we foresee 2020 sector earnings per share (EPS) potentially declining by up to 24.3% year-on-year (y-o-y) and a modest recovery of 3.9% y-o-y in 2021 EPS,” Affin Hwang Capital Research said in a note distributed on Monday.

The research house maintained its "underweight" call on the sector, not discounting the possibility of deterioration in asset quality of the domestic banking system due to potential business closures and rising unemployment.

Source: The Edge

https://www.theedgemarkets.com/article/ ... -continues

[behappyalways]

Fed Warns of Significant Financial-Sector Vulnerabilities
https://finance.yahoo.com/news/fed-says ... 27378.html

============================================


Pandemic pendulum

Why are bank bosses sounding more optimistic about loan losses?
They were hyper-prudent in April. Now the worst-case scenario might be off the cards


GAUGING HOW badly the coronavirus has damaged the economy is tricky. Pessimists diagnose a far worse recession than that which followed the financial crisis. Optimists predict a sharp recovery, pointing to robust banks and housing markets.

One way to form a view is to look at banks’ loan-loss provisions—the buffers they set aside to cover losses from loans they reckon might soon default. By that standard it seems as if the patient is recovering much faster than first thought possible.

On June 9th James Gorman, who runs Morgan Stanley, America’s sixth-largest bank, hinted that its loan-loss charges for the second quarter would be lower than in the first, because “the worst is behind us”. Gordon Smith, co-president of JPMorgan Chase, the largest bank, said that delinquency rates were “meaningfully better” than expected. Even some of Europe’s bankers seem less gloomy.

That is a stark change from just a few weeks ago. In mid-April, as they reported their first-quarter results, America’s top four lenders unveiled $24.1bn in provisions for credit losses, a jump of $18.7bn compared with the first quarter of 2019. JPMorgan increased its provision by nearly $6.9bn, hitting in one quarter the level it had reached in six during the financial crisis. Europe’s lenders also booked bad news.

Why the mood swing? To predict losses, most banks enter economic forecasts into models. The prospects for 2020 are hardly rosy, but it seems at least that economies are no longer in free fall. Employment rose in America in May. Factories in Asia have reopened. The lifting of lockdowns in the West has not yet caused a second wave of infections. Uncertainty forced banks to be hyper-prudent in April. Now the worst-case scenario seems off the cards.

Relief may be premature, though. Central-bank and government action has bought borrowers time. Cheap state-backed loans are keeping firms and households afloat. No one knows how many borrowers will find themselves overburdened with debt when normal payment terms resume later in the year. That is especially true of consumer borrowers, up to a fifth of whom have asked for payment holidays.

If unemployment persists and companies go bust, as many economists expect, many more loans will sour. Roberto Frazzitta of Bain, a consultancy, predicts that 2021 will see a surge of non-performing loans as big as that in the financial crisis, if not bigger.

This will be compounded by accounting: as customers’ balance-sheets worsen, the probability of default will rise, and regulators will demand that this be reflected in loss provisions, even if loans are still performing. Some losses will eventually be absorbed by government guarantees.

But the European Banking Association still expects losses to eat up to 3.8 percentage points of European banks’ core tier-one capital ratio (the average buffer for banks in the region is 14.8%).

Higher provisions could have three consequences, on both sides of the Atlantic. It may lead investors to question banks’ ability to pay dividends (Europe’s have suspended them, but America’s still dole them out).

It may prompt banks to refine their standard loss-prediction models by using more alternative data, says Ian Shipley of Oliver Wyman, a consultancy. And it may lead to calls for weaker lenders to consolidate, in order to improve their resilience. That would be a hard pill to swallow, but could prove a handy cure.

Source: The Economist

[behappyalways]

U.S. bank profits plunge 70% on coronavirus loss provisioning
https://www.reuters.com/article/us-usa- ... SKBN23N2GT

[behappyalways]

Big US banks set aside $28bn in downturn warning
https://www.bbc.com/news/business-53407965

[winston]

Cutting China from SWIFT?

Source: SCMP

https://www.scmp.com/economy/china-econ ... merica-cut

[winston]

Singapore Banks
Sharp decline in NIMs in 2Q20

Record quarterly decline in net interest margins (NIMs) likely a negative surprise, as repricing on sharply lower benchmark interest rates takes place

Dividends cuts may happen as early as 2Q20 as MAS reviews banks’ capital plans, including dividend payouts; scrip dividend is another possibility

Weaker fee income and provisions to continue to weigh on earnings on top of decline in net interest income, offset by likely strong trading gains

Maintain HOLD on OCBC and UOB, revised TP of $9.30 and $20.90, representing ~0.8x FY21F; we remain neutral on Singapore Banks due to limited catalysts ahead of expected weak 2Q20 earnings

Source: DBS

https://researchwise.dbsvresearch.com/R ... fgdgkfdhjg

[winston]

These Stocks Are the Best Value in the Market

by Jody Chudley

I’m confident for two key reasons…

1. Banks’ balance sheets are much less leveraged than they were going into the financial crisis. Ten years ago, bank balance sheets were leveraged 30-to-1. Today, the sector has a leverage closer to 10-to-1.

2. We don’t have a giant housing bubble this time around.

SPDR S&P Bank ETF (NYSE: KBE)

Source: Wealthy Retirement

https://dailytradealert.com/2020/07/23/ ... he-market/