• Stay NEUTRAL; Top Pick: DBS. Singapore banks’ (SG Banks) 4Q23 results were within expectations. Amid a scenario of flattish earnings as the interest rate cycle turns, DBS’ commitment to increase DPS by 24 cents pa means its absolute DPS will continue to grow, and investors will have a good line of sight as to its trajectory. Management expects to sustain this commitment over the next 2-3 years. A reduced rates leverage and ample general provision buffers are added bonuses.

• 4Q23 sector operating income was down 3% QoQ (+7% YoY) as NII dipped slightly on the NIM squeeze, while non-II softened 9% QoQ – a combination of seasonality, and lower treasury and markets as well as insurance contributions. Meanwhile, opex rose 5% QoQ on factors such as DBS’ fullquarter consolidation of Citi Taiwan, corporate social responsibility (CSR) costs and one-off technology spending. Consequently, sector CIR rose to 44.8% vs 3Q23’s 41.1%. On the flip side, total allowances were down 22% QoQ as asset quality was relatively benign. Hence, 4Q23 sector net profit was down by 8% QoQ (+7% YoY). For FY23, sector net profit jumped 25% YoY on stronger NII (+22% YoY) and non-II (+18% YoY). CIR improved to 41.5% from 43.7% in FY22, but these were partly offset by higher credit cost of 20bps (FY22: 13bps) due to specific allowances (SP) for some isolated incidences and lower general allowance (GP) writebacks.

• Guidance largely unchanged. Both DBS and OCBC Bank (OCBC) broadly retained their 2024 outlook but United Overseas Bank (UOB) cut its 2024 guidance for loan growth to a low single digit (from mid-single digit) and NIM to c. 2% (previously c.2.1%) from that in 3Q23. To be fair, UOB was also the earliest to report 3Q23 results.

• 2024 outlook. With rates elevated, income growth could be a challenge. Loan growth will likely stay soft while wealth opportunities could be muted. SG Banks are expecting 4-5 interest rate cuts in 2H24 and maintain that the impact on NIM would be cushioned by improved loan growth and wealth opportunities. UOB appeared relatively more bearish on near-term NIM, principally as its strategy to stay defensive would be a drag on NIM. On asset quality, the banks have not noticed anything systemic and highlighted that they have sufficient GP in the book to help cushion against higher-thanexpected SP. Nevertheless, the higher credit cost SG Banks had guided for in 2024 reflects an element of conservatism.

• Dividends and capital management. There were no changes to policies. Factors such as a somewhat uncertain macroeconomic outlook, impending implementation of Basel 4 (although SG Banks’ CET-1 ratios would see a c.1.5-2%-pts uplift during the transitional period) and growth were cited for the unchanged policy.

• Earnings forecasts. Following the release of the 4Q23 results, we trim sector FY24-25F PATMI by 2% and 4%, mainly on NIM assumptions – cushioned by a more optimistic fee income outlook. We continue to expect the sector’s bottomline growth to stall in 2024, where we see a slight dip in FY24F PATMI. This is mainly due to a 6bps NIM squeeze expected. Apart from that, we have pencilled in a 2bps uptick in sector credit cost to 22bps. In mitigation, we have assumed 2024F loan growth of 3-4% and 4% non-II growth, mainly underpinned by better fee income. Notable stock recommendation changes during the reporting season was our upgrade on DBS to BUY from Neutral, premised on its dividend commitment.

Source: RHB Securities Research - 11 Mar 2024