Sector update:
Regional Banks
Macroeconomic Concerns To Dominate In 2017
Regional Banks
Macroeconomic Concerns To Dominate In 2017
Heightened
concerns over the near term macroeconomic outlook point to a slow start for
regional banks in 2017. However, with most banks trading close to -1SD of the
historical mean, investor sentiment could turn more positive in 2H17 should
economic recovery gain momentum and asset quality issues recede. Within our
regional coverage, we favour Indonesia and Thai banks where fiscal stimulus
measures would enable banks to better weather external headwinds.
¨ Guarded on banks. Share prices of
regional banks under our coverage, except Malaysia banks (MY Banks), ended 2016
in positive territory after the dismal showing in 2015.Uncertainties over
global growth and incoming policies of the new US president, as well as
volatility in currency and financial markets, suggest a slow start in 2017.
Re-rating catalysts may emerge in 2H17 should economic recovery gain momentum
and asset quality pressures abate. We are selective in our picks, preferring
banks that would benefit from a rebound in domestic economies, have resilient
asset quality and strong balance sheet.
¨ IND Banks–OVERWEIGHT.
We
expect Indonesia banks under our coverage (IND Banks) to deliver the strongest
earnings growth at 12% in 2017,supported by gradual realisation of infrastructure
projects, manageable NIM slippage, and moderation in credit cost. Although
vulnerable to capital outflow, the tax amnesty programme, still-attractive bond
yields of 8% and recovery in FDIs would cushion the IDR’s fall. Preferred
picks: Bank Negara Indonesia (BBNI IJ, TP: IDR6,800) and Bank Tabungan
Negara(BBTN IJ, TP: IDR2,420).
¨ TH Banks –
OVERWEIGHT. A
setback in credit cost guidance in November led to our upward revision in loan
provisions for 2017F. Still, we remain optimistic that ongoing infrastructure
investments and improved private sector spending would lift loan growth, while
NPLs would peak by 3Q17. For Thai banks under our coverage (TH Banks), we
forecast 2017 earnings growth to strengthen to 5%. Our preferred picks are Siam
Commercial Bank (SCB TB, TP: THB181.00) and Than a chart Capital (TCAP TB, TP:
THB47.00).
¨ SG Banks – NEUTRAL. Singapore’s waning
economy would weigh on prospects of the three listed Singapore banks (SG
Banks). Loan demand is weak while fee income growth would be dull. In
mitigation, margins would likely improve, helped by the rise in US interest
rates. SG Banks have yet to cross the asset quality hump, with falling
collateral values expected to keep provisions elevated – while prolonged
economic softness raises NPL risk for banks’ SME portfolios. DBS Group (DBS SP,
TP: SGD18.38) is our pick for SG Banks.
¨ MY Banks – NEUTRAL. Sector EPS is
projected to improve 5% in 2017 after being flattish to slightly lower for
three years. Still, the sector outlook is vulnerable to asset quality risks,
given the drop in provision buffers, MYR weakness that could tighten system
liquidity, and the recent spike in bond prices that would impact banks’ trading
books. Implementation of MFRS 9 would also be closely watched. Public Bank (PBK
MK, TP: MYR22.00) is our preferred pick.
¨ CN Banks –NEUTRAL. Asset quality
deterioration remains a key threat to China’s banking system. Ongoing economic
restructuring and the Government’s focus on cutting excess capacity and
corporate leverage would push NPLs higher. Higher provisions would keep net
profit growth at a muted 2% in 2017F, despite a decent 9% rise in PIOP. We
prefer well-managed large cap banks with limited shadow banking exposure, China
Construction Bank (939 HK, TP: HKD7.40) and Bank of China (3988 HK, TP:
HKD4.50).
Kindly click the following link for the full report: Macroeconomic Concerns To Dominate In 2017
Eka Savitri
Vice President
Research Analyst - Banking
PT. RHB Securities
Indonesia
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