DBS downgraded both OCBC and UOB to Hold from Buy after Singapore imposed fresh cooling measures on the property sector, pointing to a likely hit to property-related loans.
“Loan growth sentiment will be dampened from here as this is currently driven largely by property development companies. Mortgage growth might still stay relatively stable over the next few quarters from existing drawdowns,” DBS said in a note dated Friday.
It noted that previous property cooling measures caused loan growth to halve from a high of 16 percent after a year, but it added that banks’ share prices didn’t correct sharply as business loans had remained strong.
But DBS also pointed to another potential risk down the road: “Should property sales decline significantly leading up to completion, there may be downside risks on loans to developers’ bank loans in two to three years’ time.”
It said it expected that UOB would be more affected by the property measures as it has the largest property-related loans exposure among Singapore’s banks, with mortgage loans accounting for around 28 percent of total loans in the first quarter of this eyar.
It lowered its loan growth forecast for UOB for this year to around 6 percent from 7.5 percent previously and cut its earnings forecasts through 2020 by 1-5 percent. It cut its target price to S$28.30 from S$33.20. But it noted that the around 3.7 percent dividend yield could offer support to the share.
For OCBC, the loan growth forecast was lowered to 7 percent from 8 percent for this year, it said, and it cut its 2018-20 earnings forecasts by 5 percent on lower loan growth, higher cost of funds and lower non-interest income.
It cut OCBC’s target price to S$12.20 from S$15.30. It noted OCBC’s dividend yield was around 3 percent, but said it viewed the bank as unlikely to raise dividends.
Shares of UOB were up 1.06 percent at S$26.79 at 10:51 A.M. SGT, while shares of OCBC were up 1.5 percent at S$11.48.