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Considering the high number of COVID-19 cases and various movement restrictions in 3Q21, we believe loans under moratorium for countries such as Malaysia and Indonesia may see an uptick. However, we believe exposure risks are likely manageable due to ample general provisions buffer put in place by the Singapore banks.
Across ASEAN banks, we continue to favour Singapore banks. They remain attractive due to their high earnings visibility, as well as certainty of firm earnings and return-on-equity recovery beyond 2021, supported by potential writeback of provisions and potential return of excess capital in 2022. Singapore banks are also seen as Fed hike beneficiaries as markets begin to price in Fed hikes in 2H22.
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Singapore Banks
We remain positive on Singapore banks such as UOB and OCBC as they continue to be proxies for the city-state's economic recovery.
DBS Group Research continues to see further upside for 10-year bond yields, with longer-term Singapore dollar rates to head higher, in line with US yields and global recovery. Furthermore, we believe impending Fed hikes will give the banks some room to reprice loans on higher benchmark rates.
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