Banks rerate 17% due to recovery trade: Maybank

The recovery trade is driven by news of successful COVID-19 vaccine trials.

Singaporean banks have rerated 17% since the end of October, primarily due to recovery trade catalysed by successful COVID-19 vaccine trials, according to a newly released sector analysis report by Maybank Kim Eng.

However, uncertainty that prevailed in October would remain. “Nonperforming loans are set to rise (to 2.1% next year) as moratoriums ease whilst borders remain closed, net interest margins continue to be under pressure and dividend caps are unlikely to be lifted in 2021E,” said the report.

In June, a similar hike was observed as regional circuit breakers were eased, yet it was short-lived as the expected V-shaped recovery didn’t materialise.

Banks largely maintained “bearish credit charge guidance” in Q3. “Whilst we expect overall sector allowances to fall 46% YoY in 2021E, this is off a high base,” commented Maybank Kim Eng, noting that the rate was still 13% than the one logged in 2017.

Whilst GDP expectations in Singapore will grow 4.5%, following a -5.5% contraction in 2020E, it would not be sufficient to go back to 2019 levels.

The report also stated that banks were currently “trading near the ceiling of the peak-to-trough channel established this year.