Brokers' take: RHB maintains buy on DBS, says no dividend impact from MAS penalty

RHB on Tuesday (Feb 8) maintained a " buy" call on DBS  DBS: D05 +0.27%  with a target price of S$40.40, after the bank was directed by the Monetary Authority of Singapore (MAS) to set aside an additional S$930 million in regulatory capital following the prolonged disruption of its digital banking services last November.

MAS had announced on Monday that it has imposed an additional capital requirement on DBS by requiring the bank to apply a multiplier of 1.5 times to its risk-weighted assets for operational risk.

RHB said DBS' dividend policy will not be affected by the penalty, even though the additional capital requirement of S$930 million will have an impact of 40 basis points (BPS) on the bank' s capital ratios.

This is because DBS' pro-forma common equity tier 1 (CET-1) of 13.4 per cent remains at the upper end of its target CET-1 range, inclusive of the capital impact from its acquisition of Citibank' s Taiwan consumer banking operations, the brokerage said. The CET-1 ratio refers to the bank' s core equity capital against risk-weighted assets.

DBS' management has also reiterated that the bank' s dividend policy will remain intact.The brokerage also estimates a dividend yield of about 4 per cent.

RHB&rsquo s target price of S$40.40 represents an upside of around 10.4 per cent from the counter&rsquo s last closing price of S$36.58 on Tuesday.Meanwhile, MAS has also directed DBS to appoint an independent expert to conduct a comprehensive review of November' s 2-day tech disruption, including the bank' s recovery actions. The bank has attributed the disruption to an issue with its access control servers and said that it was not a cyberattack.

The additional capital requirement will be reviewed when MAS is satisfied that DBS has addressed and rectified all identified shortcomings.

 

UOB Kay Hian remains positive on DBS and OCBC ahead of 4QFY2022 results

UOB Kay Hian analyst Jonathan Koh is keeping his &ldquo overweight&rdquo call on the Singapore banking sector, as he sees all three banks as being the prime beneficiaries of higher interest rates.

Ahead of the banks&rsquo results for the 4QFY2021 and FY2021, Koh predicts a lull in all three banks&rsquo results, as is typically seen during the quarter.

DBS Group Holdings is slated to release its results on Feb 14, while UOB and OCBC are scheduled to release their results on Feb 16 and Feb 23 respectively.

Amid the seasonal lull, the banks look to be on track to achieve high single-digit loan growth with stable net interest margin (NIM), says Koh.

Non-interest income for all three banks is also expected to be seasonally softer.
However, Koh expects &ldquo pristine asset quality&rdquo from all three banks supported by the easing of the Covid-19 restrictions.

In his report dated Feb 7, Koh estimates DBS to net profit of $1.49 billion for the 4QFY2021, up 47% y-o-y, but down 12% on a quarter-on-quarter (q-o-q) basis.

&ldquo We expect DBS to clock loan growth of 1.2% q-o-q and 10.1% y-o-y in 4QFY2021 with broad-based expansion from nontrade corporate and consumer loans. NIM is stable at 1.43% as interest rates remain near-zero (three-month compounded SORA edged marginally higher by 6 basis points (bp) q-o-q to 0.19% in 4QFY2021),&rdquo he writes.

Contribution from cards in DBS are also expected to grow 8% y-o-y due to the resumption of cross-border travel through the vaccinated travel lanes (VTLs).

Net trading income is expected to be &ldquo seasonally lower&rdquo at $310 million. Gains from investment securities are also likely to be &ldquo muted&rdquo at $100 million during the 4QFY2021.

To this end, he expects DBS to maintain its quarterly dividend at 33 cents.

Koh has kept &ldquo buy&rdquo on DBS with a target price of $40.28.