BARCLAYS RESEARCH - Gold Bullion Co., Ltd

Credit Research
Asia-Pac HG Financial Institutions
10 September 2014
Asian banks
Neutral – watch for supply
We recommend a broadly neutral stance on Asian banks over the remainder of the
year. We expect the pace of issuance to remain robust, especially in the bank capital
space given the pending issuance of preference shares by the Chinese banks. We
believe about USD23-30bn of further issuance across the capital structure is possible
over the remainder of the year. Given the issuance pipeline, as well as tight
valuations across most of the senior bond complex, we therefore think the scope for
further compression is limited.
With our economists expecting the growth recovery to continue in Asia, we expect
banks’ fundamentals to remain broadly stable. However, across the region, we expect
liquidity to remain tight, potentially driving funding costs higher. We expect headlines
surrounding M&A to remain a theme in India, Indonesia and Malaysia. In Malaysia, if
the proposed merger between CIMB and RHB is successful, we think this could change
the domestic banking landscape, and raise questions about how Maybank would
respond. In India and Indonesia, given the political sensitivities involved, we believe any
progress on consolidation will take time and is unlikely to happen in the near term.
Recommendations in major sectors:
• Hong Kong (neutral): We think a neutral stance is appropriate over the next three to
six months, as the higher-than-benchmark carry is balanced against risks related to
potential implementation of resolution authority and likely moderation in
fundamentals. That said, over the near term, we believe there will be potential for better
entry points given supply pressures. In addition to expected preference share issuance
by Chinese banks, we think some Hong Kong banks are also potential issuers.
• India (overweight): We believe an overall overweight stance remains appropriate
given India’s economic recovery and the structurally positive changes occurring in
the country. In addition, we continue to think an eventual revision of S&P’s outlook
on the India sovereign to Stable from Negative could be supportive for spreads.
• Korea (underweight): We downgrade all of our ratings on the Korean banks under
our coverage to Underweight as we think valuations are tight and any increase in
concerns surrounding a rise in US Treasury yields could potentially weigh on
performance of tight spread segments in Asia such as Korean banks. In addition,
while US investors remain a significant source of demand for Korean bank bonds,
we expect this buyer segment to, at best, provide an anchor for spreads in the face
of potential supply, rather than help to drive spreads tighter.
Trade ideas:
• Sell CINDBK 7.25% perp (103.5/104.5)
• Buy SBIIN 4.125% ‘17s (T+213/203bp)
• Buy KTB 5.2% ‘24c19 (T+287/277bp)
PLEASE SEE ANALYST CERTIFICATIONS AND IMPORTANT DISCLOSURES STARTING AFTER PAGE 13
Lyris Koh, CFA
+65 6308 3595
[email protected]
www.barclays.com
Barclays | Asian banks
RECOMMENDATIONS
Neutral stance on the Asian banks
Asian bank bonds have underperformed the market year-to-date, generating an excess
return of c.335bp versus c.385bp from the EM Asia High Grade Index. The
underperformance has generally been driven by the low-beta, tight spread segments (ie
Singapore and Korea seniors) as well as Chinese seniors given supply and concerns about
China’s economy. The outperformers year-to-date have been the Indonesian and Indian
seniors, driven by positive election outcomes.
Over the remainder of the year, we recommend a broadly neutral stance on Asia banks. We
expect the pace of issuance from Asian financials to remain robust and believe about
USD23-30bn of further issuance across the capital structure is possible over the remainder
of the year. Year-to-date issuance from Asian financials has been about USD38bn.
Given the potential issuance pipeline, as well as generally tight valuations across most of the
senior bond complex, we think the scope for further compression is limited. In addition,
while we have a stable outlook for banks’ fundamentals, we think risks are biased to the
downside given the fragile recovery in China. Liquidity is also tightening across several
banking systems, placing pressure on funding costs and margins. We discuss our
recommendations across the various banking systems in more detail below.
FIGURE 1
Banks have underperformed year-to-date (excess return, bp)
700
600
500
400
300
200
100
ID senior
IN senior
EM Asia HG
Index
Basel II sub
Sub banks
TH senior
All banks
CH /HK sub
MY senior
Senior banks
Basel III sub
SG sub
CH senior
KR senior
SG senior
0
Note: Data is as at 5 September 2014. Source: Barclays Live
FIGURE 2
Most Asian bank seniors trade tight relative to the benchmark
EM Asia USD HG Index
10 September 2014
End 2013
Current
YTD change
Difference to
Index
188
148
-40
NA
All banks
202
152
-50
4
Senior
191
138
-53
-10
Sub
259
217
-42
69
CH/HK senior
157
147
-10
-1
ID senior
313
173
-140
25
IN senior
288
186
-102
38
KR senior
116
85
-31
-63
2
Barclays | Asian banks
End 2013
Current
YTD change
Difference to
Index
MY senior
179
100
-79
-48
SG senior
83
51
-32
-97
TH senior
186
139
-48
-9
CH/HK sub
253
238
-15
90
SG sub
186
166
-21
18
Note: Data is at 5 September 2014. Source: Barclays Live
Trade ideas
Sell CINDBK 7.25% perp (103.5/104.5)
We recommend investors sell the CINDBK 7.25 perp ’19 as we believe likely T1 supply by the
Chinese banks could weigh on performance of the former. Based on previous stock
exchange announcements, we think about USD6-8bn of T1 bonds could be issued by Bank
of China (BOC) and Industrial and Commercial Bank of China (ICBC) in the USD bond space
this year. Given the higher systemic importance of BOC and ICBC, as well as the arguably
stronger fundamentals of the two banks relative to CINDBK, we think investors could look to
switch out of CINDBK perp’ 19 into potential issuance of T1 bonds by Chinese banks.
Buy SBIIN 4.125% ‘17s (T+213/203bp)
The 3s5s curve of SBI is relatively flat compared to Export-Import Bank of India as well as
other BBB-bucket issuers such as Siam Commercial Bank. For reference, the 3s5s curve of
SBI is c.8bp on a Z spread basis versus the c.29bp of Export-Import Bank of India and c.33bp
of Siam Commercial Bank.
FIGURE 3
SBIIN 3s5s is relatively flat
Z spread (bp)
160
SBIIN 19
150
EXIM 19
SBIIN 17
140
130
120
SCBTB 17
EXIM 17
110
100
SCBTB 17
90
80
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Average life
Source: Barclays
Buy KTB 5.2% ‘24c19 (T+287/277bp)
Notwithstanding the recent compression in the KTB’ 24c19s, we think there is still scope for
further compression in the KTB ‘24c19s. As we discuss later in the note, Thai banks
(including KTB) reported resilient 2Q14 results despite the challenging operating conditions
during the quarter. We expect this trend to continue over the remainder of the year given
the return of political stability as well as growth recovery. Notably, recent local media
reports (Nation, Bangkok Post) have said that onshore retail investors will be allowed to buy
Basel III T2 bonds, increasing the likelihood of T2 issuance onshore. Consequently, we
expect technicals of the KTB ‘24c19s to remain well-supported.
10 September 2014
3
Barclays | Asian banks
FIGURE 4
Summary of recommendations
Previous rating
New rating
Bank of China HK
Underweight
Underweight
Bank of East Asia
Market Weight
Market Weight
CITIC Bank International
Overweight
Market Weight
Axis Bank
Overweight
Overweight
Bank of Baroda
Overweight
Overweight
Bank of India
Market Weight
Market Weight
Hong Kong
India
Canara Bank
Market Weight
Market Weight
Export-Import Bank of India
Overweight
Overweight
ICICI Bank
Overweight
Overweight
IDBI Bank
Market Weight
Market Weight
State Bank of India
Overweight
Overweight
Indian Overseas Bank
Market Weight
Market Weight
Export-Import Bank of Korea
Market Weight
Underweight
Hana Bank
Market Weight
Underweight
Industrial Bank of Korea
Market Weight
Underweight
Kookmin Bank
Market Weight
Underweight
Korea Development Bank
Market Weight
Underweight
Shinhan Bank
Market Weight
Underweight
Woori Bank
Market Weight
Underweight
Market Weight
Market Weight
Development Bank of Singapore
Market Weight
Market Weight
Oversea-Chinese Banking Corp
Market Weight
Market Weight
United Overseas Bank
Market Weight
Market Weight
Underweight
Underweight
Korea
Malaysia
Malayan Banking Berhad
Singapore
Thailand
Bangkok Bank
Source: Barclays Live
Hong Kong – Potential for better entry points
Over the next three to six months, we believe a neutral stance on the Hong Kong subdebt
space is appropriate. In our view, the higher-than-benchmark carry of the HK subdebt
complex is balanced against risks related to the potential implementation of a resolution
authority regime in Hong Kong as well as a moderation in fundamentals. Following a
relatively strong 1H14, we think the Hong Kong banks’ fundamentals face several
headwinds in 2H14.
Firstly, we believe loan growth could slow as offshore lending opportunities to Chinese
corporates decrease on the back of looser onshore liquidity. Secondly, we think NIMs could
see some decline in 2H14 as banks are unlikely to reap the same benefit of high onshore
interbank rates. In addition, deposit competition remains intense in Hong Kong, adding to
funding cost pressures. Asset quality pressures are also unlikely to dissipate as the
economic backdrop in China remains weak. Consequently, we think the bias is for credit
costs to trend up from current low levels.
10 September 2014
4
Barclays | Asian banks
In addition to the above, we think the likely issuance of preference shares by Chinese banks
could loosen technicals at the margin, as some private bank clients could switch out of HK
T2 bonds into higher-yielding preference shares. Indeed, we have already seen some
widening in this segment in August. At the same time, we believe banks such as Bank of
East Asia and Bank of China (Hong Kong) could be bank capital issuers. We also note that
Bloomberg has reported that Bank of China is planning a USD1bn T2 bond issuance.
Consequently, we think supply could provide better entry points into the Hong Kong
subdebt segment, and recommend a tactically cautious stance over the near term.
In particular, we downgrade our rating on China CITIC Bank International to Market Weight
from Overweight. CINDBK’s bond complex has rallied strongly this year, in line with our
expectations. However, as we highlighted above, we expect supply to put pressure on the
Hong Kong subdebt segment. Across CINDBK’s bond complex, we believe the CINDBK 7.25
perps’ ‘19s are most vulnerable to spread widening on the back of potential T1 issuance by
Chinese banks, as it is currently the only USD Basel III T1 bond outstanding in Asia.
On the fundamentals front, similar to the trend seen across its peers, CINDBK reported
strong 1H14 results. Its NIM improved c.6bp h/h supported by higher interbank loan yields,
while loan growth was robust at 8% h/h (18% y/y). Its capital ratios were also healthy, with
a CET1 CAR of c.10.2%. However, as we discussed above, we believe the operating
environment for Hong Kong banks is more challenging in 2H14, and we expect CINDBK’s
profit growth momentum to moderate. In addition, CINDBK’s asset quality is also showing
an uptick in stress. Gross impaired loans increased c.13% h/h, driven by the bank’s Hong
Kong and China loan portfolios. That said, its overall gross impaired loan ratio was still low
at c.0.3%.
India – Large banks still offer value
Indian banks were the top performers in August among Asian banks, with an excess return
of c.37bp. This outperformance follows the weak performance in July. The recent judicial
actions on the coal sector and headlines on improper lending at some Indian state-owned
banks could lead to an increase in NPLs. However, while these events are headline negative,
we note that they stem from efforts to improve corporate governance in India – which we
view as a medium-term positive for the banks.
Consequently, while we suggest a more cautious stance in the near term given the potential
for further negative headlines, we believe an overall overweight stance remains appropriate
given India’s economic recovery and the structurally positive changes occurring in the
country. In addition, we continue to think an eventual revision of S&P’s outlook on the India
sovereign to Stable from Negative could be supportive for spreads. We would use any
spread widening on the back of negative headlines related to the judicial actions on the coal
sector to add exposure to our preferred banks - ICICI, State Bank of India and Axis Bank.
Please see Indian banks: Value in larger banks; remain overweight, 13 August 2014 for our
views of these banks’ fundamentals.
Korea – Tight valuations
On the fundamental front, Korean banks generally reported strong 2Q14 results. Preprovision profit was stronger q/q, supported by stable to improved NIMs and healthy loan
growth. Asset quality trends were also benign, with gross NPLs declining across most
banks. Over the remainder of the year, we expect credit metrics to remain resilient, although
we think the August policy rate cut by the Bank of Korea could put some pressure on NIM
over the near term. That said, we think net interest income should still hold up on the back
of healthy loan growth. Indeed, we think the government’s loosened rules for property loans
10 September 2014
5
Barclays | Asian banks
should provide a tailwind for loan growth – ceilings on loan-to-value ratio and debt-toincome ratio have been increased as part of a policy stimulus package announced by the
government on 25 July.
Notwithstanding the stable outlook for fundamentals, we expect tight valuations and
concerns about treasury yields to be a bigger driver of performance for the Korean bank
bonds over the next three to six months. In particular, we no longer think the Korean banks’
senior bonds offer value and see little catalysts for outperformance. For reference, the
average spread of the Korean bank senior bond complex is currently about 85bp versus the
148bp of its benchmark. In our view, an increase in concerns surrounding a rise in Treasury
yields could weigh on performance of tight spread segments in Asia such as Korean banks.
In addition, while US investors remain a significant source of demand for Korean bank
bonds, we expect this buyer segment to, at best, provide an anchor to spreads in the face of
supply, rather than help to drive spreads tighter. Indeed, we note that recent secondary
performance of new issues in the Korean bank space has been lacklustre – the KDB 2.5%
‘20s are currently indicated at T+81/78bp versus T+82.5bp at issuance.
We also do not expect substantial divergence between the performance of individual Korean
banks’ bonds. For example, Kookmin Bank has performed in line with its peers despite
negative headlines related to internal management disputes as well as the recent
resignation of Kookmin Bank’s CEO. YTD, Kookmin’s senior bonds have posted an excess
return of c.184bp compared with c.177bp of all the Korean banks’ senior bonds (Figure 14).
Given the above, we downgrade our ratings on Export-Import Bank of Korea, Hana Bank,
Industrial Bank of Korea, Kookmin Bank, Korea Development Bank, Shinhan Bank and Woori
Bank to Underweight from Market Weight. In our view, tighter-than-benchmark spreads
and continued issuance mean that the bias is for these Korean banks to underperform over
the next three to six months.
Please refer to the appendix for peer comparison tables of the Korean banks and details
regarding YTD performance.
FIGURE 5
Summary of 2Q14 results
Bank
Commentary
Hana Bank
Pre-provision profit increased c.32% q/q and 70% y/y. The sharp improvement was driven by healthy net interest
income growth as well as strong gains on disposition and valuation of securities. The growth in net interest income
was largely due to the 3bp q/q increase in NIM to 1.5%, as loan growth was muted at c.0.6% q/q. Provisions declined
during the quarter, supported by the improvement in asset quality. Gross NPLs declined c.6% q/q and Hana's gross
NPL ratio consequently declined c.9bp q/q to 1.33%.
Industrial Bank of Korea
IBK's 2Q14 results beat market expectations. Core operating trends were generally healthy, with NIM increasing c.4bp
q/q and loan growth of 1.5% q/q (c.3.3% year-to-date). Pre-provision profits were down c.9% q/q, but this was
largely due to higher one-off items in 1Q14. NPLs picked up slightly q/q, but overall gross NPL ratio was still relatively
low at 1.5%. IBK's capital ratios increased sequentially, but its CET1 CAR remained lower than peer at c.8.5%.
Kookmin Bank
Kookmin's pre-provision profit increased c.8% q/q. In line with its peers, its net interest income and NIM improved
q/q (+4bp q/q). Loans grew modestly during the quarter, expanding 1.5% q/q. Gross NPLs declined c.3% q/q and
Kookmin's gross NPL ratio consequently declined c.7bp q/q to c.1.75%. Its coverage ratio was broadly stable at
c.111%. Its CET1 CAR improved c.29bp q/q to reach c.13.1% at end June 2014.
Shinhan Bank
Shinhan's pre-provision profit increased c.19% q/q, supported by one-off items related to disposal of securities during
the quarter. Net interest income was stable, with reported NIM remaining steady at about 1.77%. Asset quality trends
were also benign, with NPLs remaining stable. Shinhan's gross NPL ratio was c.1.1% and its coverage ratio was
c.152% at end June 2014. Its capital position remains a strength, with CET1 CAR of c.12.9%.
Woori Bank
Woori's 2Q14 pre-provision profit expanded 33% q/q, supported by stronger revenues during the quarter. The trend
in its NIM was slightly weaker than its peers, with NIM declining 2bp q/q to c.1.59%. Gross NPLs declined c.6% q/q
and Woori's gross NPL ratio decreased c.19bp q/q to c.2.51%. Its coverage ratio improved sequentially but remained
lower-than-peer at c.88%. Its capital position was healthy, with CET1 CAR at c.11.4%.
Source: Barclays Research
10 September 2014
6
Barclays | Asian banks
Malaysia – Supply expected to remain opportunistic
Our Market Weight rating on Maybank is driven by our view that spreads will remain
supported by the scarcity value of Malaysian bank paper. While we expect some pick up in
supply from these banks, we believe supply will remain largely opportunistic in nature. Our
view is supported by the banks continued access to the onshore market, a trend we expect
to continue. We note that Maybank recently obtained approval from the Securities
Commission Malaysia and Bank Negara Malaysia to set up its proposed MYR10bn Basel III
T1 programme. In the USD bond space, CIMB Bank could be a potential issuer as Moody’s
recently assigned ratings to the bank’s proposed USD5bn Euro MTN programme.
Overall, Malaysian banks’ 2Q14 results were credit-neutral. Asset quality trends are still
relatively benign while capital ratios remained healthy. That said, revenue growth is under
pressure given the slowdown in domestic loan growth. We note that Maybank downgraded
guidance for its 2014 domestic loan growth to 9-10% from 12% at its 2Q14 results briefing.
NIMs are also under pressure, with competition for deposits remaining intense. With
Malaysia’s loan-to-deposit ratio ticking up, we expect deposit competition will remain in
place over the remainder of the year. In addition, we think the more geographically
diversified financial groups, such as Maybank, will continue to see asset quality pressure in
their Indonesian loan portfolios. Over the medium term, more consolidation in the banking
system, assuming a successful CIMB-RHB merger, would be positive for the sector,
although competition among the smaller players could intensify further.
Singapore – Move down the capital structure
Our Market Weight ratings on the Singapore banks reflect our view that their senior bonds
are rich, given tight valuations and the potential for a pick-up in senior supply. In our view,
senior/covered bond issuance by the Singaporean banks is possible given the rise in loanto-deposit ratios, particularly at UOB. In addition, while overall credit metrics at the three
banks remain sound, we note that an eventual rise in interest rates as well as moderating
domestic property prices could put some pressure on fundamentals in due course.
At the same time, our Market Weight ratings are underpinned by our view that the Basel III
T2 bonds of the banks are attractive, offering a decent pick-up over the senior bonds. While
we think DBS could be a potential T2 bond issuer, we think any supply from the bank would
be well-absorbed and is unlikely to drive spreads in the Singaporean Tier 2 bond complex
materially wider. In addition, ratings pressure on OCBC has eased following its
announcement of a SGD3.3bn equity raise as well as the potential sale of its stake in United
Engineers Limited. Both Moody’s and Fitch have revised the outlook on OCBC back to Stable
following the news of its equity raise.
Please see Singaporean banks - Neutral 2Q14 results; buy Basel III callable bonds, 5 August
2014 and OCBC - Announces plan to raise SGD3.3bn in equity, 18 August 2014 for more
details.
Thailand – Valuations reflect improved fundamental outlook
Our decision to maintain our Underweight rating on Bangkok Bank (BBL) was a close call.
On a fundamental basis, the 2Q14 results of BBL and the other banks were resilient despite
the challenging operating environment during the quarter. Indeed, BBL’s 2Q14 preprovision profit was stable, supported by healthy net interest income growth. BBL’s NIM
increased c.14bp q/q to c.2.44%, driven by maturities of high cost fixed deposits during the
quarter. Its gross NPLs were broadly stable during the quarter and its gross NPL ratio was
relatively low at c.2.3%.
10 September 2014
7
Barclays | Asian banks
With political stability resuming in Thailand and our economist expecting a modest growth
recovery in 2H14 and into 2015, we think the outlook for banks’ fundamentals has
improved. Indeed, the banks themselves appear more optimistic and expect a pick up in
loan growth. Asset quality risks have also abated given the economic recovery, although a
further uptick in NPLs cannot be ruled out in our view.
However, we believe the improvement in the outlook for fundamentals is already largely
reflected in current valuations. Since the military coup in late May, Thai senior bonds have
rallied strongly and are currently trading about 10bp tighter than their benchmark. For
reference, Thai seniors were trading 16bp wider than their benchmark at end May.
Consequently, with bond issuance likely to pick up with the return of political stability, we
think the bias is for Thai banks’ senior spreads to trend wider, or at best remain stable.
Across the Thai bank complex, we see value in going down the capital structure to pick up
spread. Recent local media reports (Nation, Bangkok Post) have said that onshore retail
investors will be allowed to buy Basel III T2 bonds, which we think will increase the
likelihood of T2 issuance onshore – and provide positive technical support for the KTB
‘24c19s.
FIGURE 6
Thai banks are trading tighter than benchmark
FIGURE 7
KTB 24c19s still offer decent pick-up to its senior bonds
Thai banks
EM Asia HG Index
Differential (RHS)
OAS (bp)
220
KTB 2.25 18
OAS (bp)
25
20
200
15
180
10
5
160
0
350
300
250
200
-5
Source: Barclays Live
10 September 2014
04-Sep-14
21-Aug-14
100
07-Aug-14
Sep-14
Aug-14
Jul-14
Jun-14
May-14
Apr-14
Mar-14
Feb-14
Jan-14
-20
24-Jul-14
-15
100
150
10-Jul-14
-10
120
26-Jun-14
140
KTB 5.2 24c19
Source: Barclays Live
8
Barclays | Asian banks
FUNDAMENTAL THEMES
Fundamentals still stable; but rising headwinds
On the whole, the fundamentals of Asian banks (excluding India) have been fairly resilient
this year. While loan growth rates have moderated, we think it remains at levels sufficient to
support healthy revenue growth. Meanwhile, asset quality trends have been broadly benign,
notwithstanding idiosyncratic spots of weaknesses. Consequently, credit costs have
remained at multi-year lows across the region, supporting banks’ bottomline growth.
Over the remainder of the year, with the economic recovery expected to continue in Asia,
we expect banks’ fundamentals to remain broadly stable. However, across the region, we
believe pressure on margins will remain a key theme. As we discuss below, we think tighter
liquidity as well as impending Basel III liquidity rules will drive funding costs higher.
Consequently, momentum in revenue growth could slow further, although we expect still
low credit costs to support net profit growth.
We expect capital ratios to remain broadly stable to slightly higher. As we had anticipated at
the start of the year, capital management has been and will continue to be a major focus of
the Asian banks. In addition to the expected issuance of preference shares by Chinese
banks, we have seen greater focus on risk-weight management (eg Bank of China (Hong
Kong)) and increased optimization of capital structures (eg OCBC, Bank of India).
Notwithstanding our stable outlook for fundamentals, we think China’s fragile economic
recovery poses downside risk for the region. A weaker-than-anticipated recovery could have
negative knock-on impact on growth in Asia, and consequently banks’ revenue growth and
asset quality. In such a scenario, away from the Chinese banks, we think the Hong Kong and
Singaporean banks would clearly be the most affected given their growing China exposure.
Indeed, Hong Kong banks have already seen their China-related impaired loans creeping up,
although they remain at low levels relative to the size of their total loan portfolios.
In addition to the risks from China’s recovery, we expect investors to increasingly focus on
the impact of potentially higher rates on banks’ asset quality, especially given the build-up
in household leverage in most banking systems over the past few years.
FIGURE 8
Chinese banks’ NPLs are rising…
FIGURE 9
…as are NPLs in Hong Kong banks’ China portfolios
CNY mn
HKD mn
120,000
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
100,000
80,000
60,000
40,000
20,000
0
BOC
CCB
Dec-13
Source: Banks
10 September 2014
AGRBK
ICBC
BOCHK
BEA
Jun-14
Dec-13
Jun-14
Source: Banks
9
Barclays | Asian banks
Focus on liquidity to increase
Liquidity across most banking systems in Asia has continued to tighten this year, as seen by
the rise in loan-to-deposit ratios. The rise has been most stark in Singapore, where the
system-wide LDR reached a high of c.111% at the end of June 2014. Even on a DBU-basis,
Singapore’s loan-to-deposit ratio was c.112%. While we believe the tightness in liquidity is
probably more acute at the foreign banks, we note that the local banks have also posted
rising SGD loan-to-deposit ratios. Indeed, UOB’s SGD LDR was c.100% at end-June 2014.
While LDRs in the rest of Asia have not reached the levels of that seen in Singapore, a rising
trend has also been seen in Malaysia, Thailand, Hong Kong and Indonesia.
Overall, we think liquidity will likely remain tight over the next six months, especially as we
approach the end of QE by the US Federal Reserve. However, the recent easing by the
European Central Bank should provide some counterbalance to moves by the Fed.
Singapore and Hong Kong could also see some reprieve in liquidity pressure in the nearterm as we believe a looser monetary stance in China should reduce the offshore lending
opportunities for banks, resulting in a slower pace of loan growth. Our China economist
expects two interest rate cuts by the PBoC in 2H14 and believes that lowering medium-term
interest rates/financing costs in the economy is a top priority for China’s central bank.
As the deadline for implementation of Basel III Liquidity Coverage Ratio approaches, we
expect banks’ focus on liquidity management to also increase. Consequently, we believe the
competition for deposits will remain intense, particularly given the moderation in deposit
growth across most systems.
SG
Source: Central banks, Barclays Research
TH
MY
May-14
Jan-14
Mar-14
Sep-13
Nov-13
Jul-13
Mar-13
May-13
Jan-13
Nov-12
Sep-12
Jul-12
Jan-12
Mar-14
May-14
Jan-14
Sep-13
60%
Nov-13
90%
Jul-13
65%
May-13
95%
Mar-13
70%
Jan-13
100%
Nov-12
75%
Jul-12
105%
Sep-12
80%
May-12
110%
Jan-12
85%
Mar-12
115%
May-12
FIGURE 11
Loan to deposit ratios in Malaysia and Hong Kong
Mar-12
FIGURE 10
Loan to deposit ratios in Singapore and Thailand
HK
Source: Central banks, Barclays Research
Headlines surrounding M&A likely to continue
Following OCBC’s successful acquisition of Wing Hang Bank, we think headlines
surrounding consolidation in Hong Kong should ease for now. However, we expect
consolidation to remain a major topic in Malaysia, Indonesia and India. In Malaysia, there
have been little further details regarding the proposed merger between CIMB and RHB.
However, a successful merger between the two could change the banking landscape in the
country and raises questions about how Maybank would respond.
In India and Indonesia, given the political sensitivities involved, we believe any progress on
consolidation will take time and is unlikely to happen in the near-term. In India, we believe
10 September 2014
10
Barclays | Asian banks
consolidation is more likely to begin with State Bank of India and its associate banks. While
there have been media reports commenting on the possibility of mergers between the small
banks (ie, IDBI and United Bank of India, Economic Times, 26 July 2014), we think such
mergers would be challenging given the capital constraints faced by most of the smaller stateowned banks in India. Nonetheless, we think any progress on the consolidation front would be
positive for India and Indonesia as fragmentation in these systems would be reduced.
10 September 2014
11
Barclays | Asian banks
APPENDIX
FIGURE 12
Peer comparison of Korean banks
Kookmin
KRW bn
Shinhan
Hana
Woori
IBK
1Q14
2Q14
1Q14
2Q14
1Q14
2Q14
1Q14
2Q14
1Q14
2Q14
Net interest income
1,209
1,242
1,083
1,090
614
644
1,066
1,082
1,081
1,114
Pre-provision profit
545
585
591
703
330
435
405
538
707
641
Provisions
222
242
57
194
108
89
30
225
263
262
Net profit
258
288
425
417
297
272
305
221
327
293
Profitability
Provisions/pre-provision profit
NIM
41%
41%
10%
28%
33%
21%
7%
42%
37%
41%
1.78%
1.82%
1.77%
1.77%
1.47%
1.50%
1.61%
1.59%
1.92%
1.96%
3,687
3,576
2,008
2,001
1,790
1,680
4,906
4,607
2,295
2,419
Asset quality
NPLs
NPL ratio
1.8%
1.7%
1.1%
1.1%
1.4%
1.3%
2.7%
2.5%
1.5%
1.5%
Coverage ratio
111%
111%
147%
152%
119%
119%
84%
88%
161%
155%
12.8%
13.1%
12.8%
12.9%
10.6%
10.8%
11.3%
11.4%
8.2%
8.5%
Capital
CET1 CAR
T1 CAR
12.8%
13.1%
14.1%
13.7%
10.6%
10.8%
12.8%
12.8%
9.0%
9.3%
Total CAR
15.4%
15.6%
16.3%
15.9%
13.5%
13.7%
15.4%
16.2%
12.0%
12.2%
97.7%
98.5%
98.0%
98.2%
98.8%
98.7%
97.8%
97.9%
NA
NA
Funding
KRW LDR
Source: Banks, Barclays Research
FIGURE 13
OAS of Korean banks - senior
Total
Kookmin
Kexim
Hana
IBK
KDB
Shinhan
Woori
Dec-13
116
132
104
132
102
108
118
125
Jan-14
108
119
103
111
93
101
112
109
Feb-14
91
97
84
105
82
78
107
104
Mar-14
79
89
73
88
71
69
99
97
Apr-14
86
76
79
93
78
78
104
105
May-14
82
76
75
88
75
74
89
97
Jun-14
83
76
77
87
76
77
91
98
Jul-14
80
71
77
85
75
73
89
99
Aug-14
84
80
81
89
75
78
89
100
Note: Data as at 5 Sept. Source: Barclays Live
10 September 2014
12
Barclays | Asian banks
FIGURE 14
Year to date excess return by bank
Excess Return (bp)
Hana
KEB
Kexim
Kookmin
KDB
Shinhan
Woori
IBK
200
180
160
140
120
100
80
60
40
20
0
Note: Data as at 5 Sept. Source: Barclays Live
10 September 2014
13
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