What’s the latest on the share prices of DBS, OCBC and UOB?
The market valuations of Singapore’s three main banks have taken a huge beating since the emergence of the coronavirus pandemic.
Since the coronavirus first broke out globally, all three lenders have seen their share prices erased in the region of 30%.
On Monday 23 March alone, all three banks saw their stock prices crash an average of 7.65%, following reports of the US Senate’s stalemate regarding a US$2 trillion economic stimulus bill.
As evident by this latest price rout, Singapore banks and the wider equity market continue to be closely impacted by US coronavirus developments.
The Straits Times Index, for instance, fell over 15% on the IG trading platform the week after the US Federal Reserve announced an emergency interest rate cut of 100 basis points to between 0% and 0.25%.
During the week of 16 March to 20 March, the three money lenders also lost an average of 11.05% in market valuation.
Since late-February, DBS, OCBC and UOB have also begun buying back shares, in an attempt to minimise share price drops. In just ten weeks, the three banks have already completed 80% of their 2019 buyback volume.
With the Singapore government introducing stricter virus control measures this week, we examine how the share prices of Singapore's three main banks have fared up to now.
DBS Group share price: ↓ 36.57%
Since the first coronavirus case was confirmed in Singapore on 23 January, Singapore’s largest financial institution DBS Group has seen share price plunge by 36.57%.
On Monday 23 March, the money lender saw its stock value depreciate to S$16.85 – its lowest level since January 2017, based on IG trading data.
DBS Group also started buying back shares on 26 February. It has purchased 21.4 million shares from the market as of 24 March.
As mentioned earlier, like many other global financial markets, the Singapore stock market continues to be affected by US coronavirus updates – good or bad.
In our most recent update on DBS on 16 March, we had reported that the group’s share price fell 3.98% the day following the US central bank’s sudden reduction of the Fed fund rate.
Bloomberg Intelligence analysts had previously told IG Asia that Singapore banks were expected to be impacted heavily by upcoming US interest rate movements.
Diksha Gera, Sector Head, Global Financials Research, said in a research call on 11 March that ‘Hong Kong banks are the most geared toward US interest rates, followed by Singapore banks’. In saying that, she added that there’s also a possible ‘second order impact’ of whether Asian regulators and central banks will decide to follow the US Federal Reserve rate moves.
For now, CIMB analysts are of the opinion that the Fed rate cuts will eat into DBS Group’s net interest margins (NIMs) by 12 basis points (bps) in the 2020 financial year, and another five bps in 2021.
RHB researchers had already earlier cut their NIM forecast for DBS Group’s 2020 financial year to 1.78% from 1.81% on the back of the last round of FFR reduction. They stated that the first cut on 03 March of 50bps to 1.25% had led to a sharp fall in three-month SIBOR to the current 1.35%, versus February’s 1.69%.
On that note, they have reiterated a ‘neutral’ rating on the stock and lowered share price target from S$24.80 a share to S$21.50.
OCBC share price: ↓ 29.79%
Things are somewhat less precarious for Singapore’s second largest bank – in terms of the fact that its share price has not fallen as much as the other two lenders.
Still, the group’s market valuation sunk 6.9% on 23 March to graze S$7.81 per share – a level not seen since April 2016.
OCBC started buying back shares on 25 February. The bank has purchased 2.8 million shares as of 24 March.
With share price dropping by record levels, short selling on the bank’s counter has also risen to unprecedented numbers as well. Since late-January, OCBC’s short sell volume has jumped up by as much as 82%.
In late-January this year, short sell volume was 846,000. On Monday 09 March, in a global sell-off atmosphere triggered by the worsening coronavirus pandemic, as well as Saudi Arabia and Russia disputes over oil, short sell volume hit the year’s peak of 4.71 million shares (or 18.4% of all trades on the OCBC counter) as share price plummeted 6.76% from the previous weekend.
OCBC’s average short sell price currently stands at S$8.16, according to Singapore Exchange data from 24 March.
Short selling, also known as going short or shorting, is when traders place trades on the hope that markets will fall in price. When going short, one sells a borrowed asset, then aims to buy it back later for a profit. Most short-selling takes place on shares, but is also available on other financial markets, including forex and indices.
Analysts from DBS, UOB, CIMB, Maybank and RHB have lowered their 12-month share price targets for OCBC to an average of S$9.58 per share.
UOB share price: ↓ 34.5%
With a market capitalisation of S$29.53 billion, UOB is the third most valuable bank in Singapore, and fifth overall among all public companies.
UOB’s share price has also taken a huge beating in the last 10 weeks, descending 34.5% during this period to a current buy-in of under S$19 a share. Shares were trading over S$26 in January.
Stocks fell 8.1% in just one day on 23 March to a four-year low of S$17.28, following the US Senate’s failure to approve a US$2 trillion coronavirus fiscal response bill.
Short selling on the UOB counter hit a peak of 1.7 million shares on Thursday 19 March, or 23.2% of all transactions that day, as share price fell 5.14% for the first time since late-2016 to under S$19 a share.
The bank started its share buy-back programme later than the first two banks on 06 March. Since that date, UOB has purchased 936,000 shares from the market.
Analysts from CIMB, DBS, Maybank and RHB have given the UOB stock an average 12-month price target of S$20.24 a share.
Maybank analysts gave the highest target of S$22.55 per share, stating that UOB has historically displayed lower non-performing loan growth volatility during banking down cycles, including the 2008 Global Financial Crisis.
They further noted that the group’s strong CET-1 ratio of 14.3% and high loan loss provision cover of 91% also places it in a solid position at the beginning of the coronavirus crisis.
‘The group’s regional integration efforts together with a low US dollar loan-to-deposit ratio (62%) should also give UOB an advantage in gaining market share from North-South supply chain moves’, they concluded.
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