Singapore banks may see worst-case hit of 14-18% on revenue over consumer loan relief: Jefferies

Jefferies has maintained its "buy" call on DBS and OCBC, and its "hold" recommendation on UOB.
Jefferies has maintained its "buy" call on DBS and OCBC, and its "hold" recommendation on UOB.PHOTO: ST FILE

SINGAPORE (THE BUSINESS TIMES) - In a worst-case scenario, Singapore banks may see a 14 to 18 per cent hit to their revenue in 2020 following the latest coronavirus relief measures for consumers, said Jefferies Research in a report on Wednesday (April 1).

The Monetary Authority of Singapore (MAS) on Tuesday announced measures that showed how financial institutions should allow distressed property owners and small and medium-sized enterprises (SMEs) to defer debt repayments or payments on insurance policies, amid the virus crisis.

Banks and finance companies must allow deferments on principal repayments of qualifying mortgages and secured corporate loans through to the end of the year. Insurers can also offer deferments of instalment payments on health insurance policies, and design instalment payment plans on general insurance held by both individuals and corporates.

Assuming the bank's entire mortgage and personal loan book is available for interest deferment or lower rates, Jefferies analyst Krishna Guha sees a 14 and 16 per cent hit on revenue for DBS and OCBC respectively on a worst-case basis, and a 18 per cent impact on revenue for UOB. UB sees the largest percentage hit on revenue as the bank has the biggest on-and-off balance sheet exposure among the trio for small businesses at S$34 billion, said Jefferies.

That said, Mr Guha noted that lower credit cost will help cushion the negative impact on revenue, and sees "comfort" around valuation, capital and ample liquidity.

"The (support) package will certainly help mitigate cash flow strains for businesses and households, along with various fiscal and monetary measures. Forecasting for banks becomes difficult; it is likely that the negative impact on revenue will have some offset from lower credit cost," he said.

Jefferies has maintained its "buy" call on DBS and OCBC, and its "hold" recommendation on UOB.

All three banks traded lower on Wednesday morning. As at 11.55am, shares of DBS stood at $18.35, down 22 cents. Shares of OCBC fell nine cents to $8.55, while shares of UOB were 14 cents lower at $19.31.

LISTEN TO MONEY HACKS PODCAST