SGX Stocks and Warrants

Banking - Marginal Impact, But Pace Already Slowing

kimeng
Publish date: Thu, 11 Oct 2012, 09:58 AM
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Maintain Underweight. Channel checks with the banks indicate the expectation of an impact to loan growth from the recent property rulings, but a modest one. Regardless, mortgage growth has already been moderating and this trend is likely to persist amid weaker economic fundamentals. Loan growth and NIM guidance continues to be shaved amid higher deposit rates and a still competitive lending environment. Our Underweight call is maintained, with a SELL on UOB and DBS, and a HOLD call on OCBC.

About 5% of DBU loans. Housing loans currently account for about 31% of total DBU loans and according to MAS, 45% of new residential property loans granted over the past three years are more than 30 years in tenure. Rough estimates would suggest that about 18% of outstanding housing loans are more than 30 years, or 5% of total loans. Based on our enquiries with the banks, about 20-30% of their borrowers have more than one housing loan.

A manageable impact. Generally, the banks expect the measures to dampen housing loan growth but to a manageable extent. One bank estimates the ruling to impact about 10% of its current loan applications. Given that the prevailing mortgage pipeline remains healthy, the impact to overall loan momentum would only be more apparent once the lines are drawn down 6-9 months down the road i.e. in 2013. Positively, banks expect to better retain existing customers for with these guidelines, there is less propensity for them to refinance prevailing housing loans with other banks, particularly the foreign ones.

UOB could be slightly more affected by the new rulings. Housing loans account for a slightly higher 23% of UOB’s total loans ex-Malaysia (vs 21% each for OCBC and DBS), and they have contributed to a meaningful portion (26% vs 19% for OCBC and 13% of DBS) of its loan growth over the past 2½ years. What is not known is the proportion of loans that are more than 30 years in tenure, but all things being equal, UOB’s loan growth could be more affected relative to its peers.

Risk of slower loan growth. There is downside risk to our loan growth estimates of 10.2% (2012) and 9.6% (2013) stemming from the weaker economic environment. DBS, for instance, has trimmed expectations and is now guiding for high-single digit to 10% loan growth for this year versus growth in the low-teens previously. We estimate a negative 1.1-1.5% impact to earnings for every 1-ppt cut in loan growth assumption.

Source: Maybank Kim Eng Research - 11 Oct 2012

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