Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive with upside surprise due to excess capital ratios. Improving economic conditions and rising interest rates remain tailwinds for the banking sector. SGX (SGX:S68) is another beneficiary of higher interest rates.
3M-SOR And 3M-SIBOR Up
Interest rates continued to increase. The 3M-SOR was up 41bps m-o-m to 1.47%, while the 3M-SIBOR was up 27bps m-o-m to 1.21%. The 3M-SOR is 93bps higher than its 1Q22 average of 0.54% and has improved by 120bps y-o-y. The 3M- SIBOR is 68bps higher than its 1Q22 average of 0.53% and has improved by 77bps y-o-y.
Five Digital Banking Licenses Awarded In Malaysia
Malaysia’s central bank, Bank Negara Malaysia (BNM), announced the five digital banking license winners on 29 Apr. They are Grab Holdings; Sea Group; Malaysian mobile carrier Axiata’s fintech unit Boost Holdings; AEON Financial Service and KAF Investment Bank.
BNM has capped the digital banks’ assets at RM3bn (S$0.94bn) during the foundation phase, which could be mid-2026 to mid-2029. This means the total digital bank balance sheets will be less than 1% of the Malaysian banking system. The digital banks are more likely to focus on less capital-intensive areas, like payments and remittances, distribution of third-party investment and insurance products.
OCBC Hit With Additional S$330mil Capital Requirement Over SMS Phishing Scam Response
The Monetary Authority of Singapore (MAS) has imposed an additional capital requirement of about S$330mil on OCBC (SGX:O39) for its deficiencies in responding to a wave of spoofed SMS phishing scams in December 2021.
The additional penalty will impact OCBC’s CET1 ratio by 0.21%, which would mean OCBC’s CET1 ratio would now be 14.99%. Nonetheless, this would not affect the bank too much as it still has a healthy CET1 ratio, which at 14.99% is still higher than DBS (SGX:D05) (14.0%) and UOB (SGX:U11) (13.1%).
Maintain OVERWEIGHT
We remain positive on banks. Bank dividend yields are attractive with upside surprise due to excess capital ratios. Improving economic conditions and rising interest rates remain tailwinds for the banking sector.
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