Financial Industry 07 (Jul 18 - Dec 24)

[winston]

HK Banking Sector - Encouraging signs have emerged

HK banks’ recent quarterly results highlighted some encouraging signs of improving revenue outlook with loan growth and fee income came in better than expected.

Having said that, net interest margin (NIM) contracted further in 1Q21. 1-month HIBOR weakened further into 2Q21 and dropped 4bps vs. the average of 14bps in 1Q21, suggesting there could be some more downward pressure on NIM.

Banks’ management, in general, is guiding NIM would under some pressure but should stabilize thereafter, with headwinds from rates to be offset by funding repricing and increased loan growth.

In general, HK banks’ loan growth are better than market expectation. Standard Chartered Bank (SCB, 2888 HK) and Bank of China HK (BOCHK, 2388 HK) had stronger than expected loan growth at +4% q/q, outperforming HK system loan growth of +2.8% q/q in 1Q21. Going forward, the global recovery and spillover credit demand from Mainland China should be supportive to loan growth.

Fee income beat market expectations and was supported by income from wealth management. Revenue from wealth management accounts for around 10-20% of HK banks’ total revenue.

HSBC (5 HK / HSBA LN) and SCB reported a strong growth in wealth management revenue and increased by +65% y/y and +21% y/y respectively in 1Q21. Looking ahead, both HSBC and SCB expects revenue from wealth management could maintain at double-digit growth in the near-term.

Regulators in the Greater Bay Area (GBA) jointly announced a consultation paper in early May regarding Wealth Management Connect pilot scheme in the GBA. We expect the scheme would be able to launch June or 3Q21.

We believe the initiative would be positive for HK banks to expand their product distribution to a broader customer base and a. Additional revenue contribution from Wealth Connect should grow over time. HK and China banks with broad product offerings and a strong presence and distribution capability in the GBA would be key beneficiaries, in our view.

We maintain our positive view on HK banks. Revenue is expected to improve gradually, with NIM close to trough and loan growth picking up.

HK banks should be one of the key direct beneficiaries of rising inflation. Looking ahead, potential catalysts would include border opening and increased payout ratio.

With reduced regulatory pressure and a strong capital position, it provides buffer for potential upward revision in payout ratios. Despite some 23% share price increase year-to-date, valuation of HK banks as a sector is not demanding and is trading at 12x forward P/E, 0.9x forward P/B and offering around 4% forward dividend yield.

We prefer HSBC among HK international banks and BOCHK among HK domestic banks.

Source: OCBC

[winston]

Big bank earnings

Goldman and JPMorgan will kick off a week of Wall Street results before the US market bell on Tuesday.

The top five US banks' earnings are expected to look weaker but more normal compared to last year.

The biggest drag: trading revenue, estimated to take an average 28% nosedive after 2020's volatility-driven windfalls.

On the up: investment banking revenue after a surge of M&A, stock offerings and debt deals — though probably not enough to offset trading.

Keep an eye on reserves, with JPMorgan, BofA and Wells Fargo estimated to release US$1 billion between them.

Source: OCBC

[winston]

There was mixed news for European bank shareholders, with the Bank of England saying it had fully removed limits on dividends while the ECB signaled it could take steps to ensure lenders avoid excessive payouts when the cap is most likely lifted later this year.

Source: Bloomberg

[winston]

CLSA Cites CN Banks: Exposure to Highly-levered Developers Limited; CN May Fine-tune Property Financing Policy

Investors were concerned about the rising Chinese property loan risks, while lenders' representatives were upbeat on the related asset quality outlook.

Listed banks have handled developer loans prudently, with white lists and concentrating exposure in tier-1 and tier-2 cities, reported CLSA. Thus, Chinese banks should have limited exposure to highly-levered developers.

In case of higher spillover risks, the broker expected the watchdog to fine-tune real estate financing policies.

Source: AAStocks Financial News

[winston]

G Sachs: CN Property NPL May Make CN Banks' Earnings Volatile, Yet Wealth Mgmt Product Downside Not Major Threat

Goldman Sachs published a report, responding to investors' major concerns on contagion risk, including shadow banking, mortgage NPLs and mortgage financing.

The broker believes that, overall, the shadow banking, which is represented by the banks' wealth management products, is unlikely to constitute a huge threat to the Chinese banking system during a housing market downcycle.

Any potential increase in mortgage NPLs, however, could lead to intensifying volatility on Chinese banks' earnings, Goldman Sachs added.

Related News: CLSA Cites CN Banks: Exposure to Highly-levered Developers Limited; CN May Fine-tune Property Financing Policy

Source: AAStocks Financial News

[winston]

China banks (Stress testing property risks)

China bank share prices tumbled today with CMB leading the fall (down 9%).

The market is pricing-in an increasing probability of spill-over effects from developers into other parts of the economy.

Indeed, should the property market correct notably as per the read-across to Wenzhou in 2011-2015, China’s banking sector is likely to suffer from both spiking NPLs and capital outflows.

Under a scenario of developers and mortgage borrowers recording 22% and 5% NPL ratios, we calculate the banking sector’s CET-1 ratio to drop by 220bps to 8.3%.

However, we expect policy makers to take necessary measures and to minimise the spill-over effects.

Major listed banks, including CMB and the big four banks, can withstand such a property market downturn on higher mortgage exposure, stronger provisions and more solid capital adequacy.

Source: CLSA

[winston]

China Banks - Evergrande’s Default Crunch Is Unlikely to Be China’s Lehman Moment

Evergrande's default crunch and its contagion impact present a potential systemic risk to China's financial system, noting c.41% of the banking system assets was either directly or indirectly associated with the property sector as of end-2020.

We do not see the Evergrande crisis as China's Lehman moment given policymakers will likely uphold the bottom line of preventing systematic risk to buy time for resolving the debt risk, and push forward marginal easing for the overall credit environment.

Our proprietary analysis on banks' loan exposure to high-risk developers suggest developer credit risk is the highest for Minsheng Bank/Ping An Bank/Everbright Bank, while Bank of Nanjing/CRCB/PSBC are less vulnerable.

We would see any dip as an enhanced opportunity to buy quality names.

Source: Citi

[winston]

Singapore Banks - Balance sheet balancing | POSITIVE

Singapore banks are sitting on massive liquidity.

DBS has been mostly parking excess at central banks, while UOB has increased its securities holdings. For the latter, this may provide a near-term margin boost.

Ultimately, higher lending is the most desired option, but varying speeds of re-opening cloud near-term visibility.

Yet, we expect ASEAN-5 growth to surge in 2022E, which should give significant opportunities to participate UOB could benefit the most, in our view.

Source: OCBC

[behappyalways]

EU, US Agree To Expel "Selected Russian Banks" From SWIFT, Sanction Russian Central Bank
https://www.zerohedge.com/geopolitical/ ... s-targeted

[winston]

Banking – Singapore
The First Strike At High And Persistent Inflation

The Fed’s dot plot indicates six hikes totaling 175bp for the remainder of this year,
including one hike of 50bp.

The plan to downsize the Fed's balance sheet will be unveiled during the next FOMC meeting on 3-4 May 22.

Tighter monetary policy and higher interest rates are positive for banks.

However, the outcome of the Russia-Ukraine war remains uncertain.

BUY DBS (Target: S$38.15) and OCBC (Target: S$15.00) for 2022 dividend yield of 4.1% and 4.7% respectively. Maintain OVERWEIGHT.

Source: UOBKH

https://research.uobkayhian.com/content ... 1ed754442b