To The Moon

As stock investment for SRS and CPFIS are largely restricted to the Singapore market, I do have a sizeable portfolio weight in the three SG local banks as they have decent ROE with stable earnings growth. Hence, it's important for myself to review this sector regularly and keep myself updated.

I do think that the financial sector in Singapore is expected to have strong profits and visibility in the next 6-12 months due to the high rates being passed on to domestic borrowers while Singapore banks continue to enjoy one of the best deposit franchises in the region. This will add strength to net interest margins and profitability.

On the asset side, Singapore banks are experiencing a boost in balance sheet growth and asset quality due to shifts in the regional macroeconomy, which is likely to drive earnings momentum and provide a share price floor through dividend yields. Wealth management and transaction services are expected to be significant contributors to the earnings of Singapore's banks.

In the next two years, dividends, book value growth, and foreign exchange will be major drivers of total returns for investors in these banks. The average Common Equity Tier 1 ratio for the three Singapore banks is around 14%, and is expected to increase despite stable or higher dividend payouts in 2023/2024, due to the banks generating significantly more capital from the same profits, resulting in limited expansion of risk-weighted assets. The Singapore dollar is anticipated to remain stable due to structural economic tailwinds and the high rate of pass-through of rates, and book value growth is predicted to be steady for 2022-2024.

However, there may be some increase in non-performing loans and the need for provisions in the next two years due to the high rates leading to cash flow issues for borrowers.

Overall, I think the earnings performance for the three local banks should be okay. Hopefully the banks will ride through this impending recession without much problem!

@Daily_Discussion @TigerStars