Local Banking Sector & Commentary 29/3/2023

The 3 local banks recently announced 2022 Q4 earnings and rewarded shareholders with increased dividends payout.

However my view is that investors should be more concern over the future coming prospects of the local banking sector rather than the dividend yield.

From the above table,

The bank that pays out the highest yield is OCBC. Though UOB dividend yield is the lowest among the 3 local banks, they may register the highest EPS growth over 2023-2024 with the acquisition of CitiBank Thailand, Malaysia, Vietnam and Indonesia Units. DBS Group acquired CitiBank Taiwan.

Note: Dividend Yield computation is based on quarterly, interim, final dividend payout and does not take into account of special dividend. Dividend Payout and Dividend Payout Ratio is subject to management discretion.

Lets take a look at recent top management commentary to gain an insight about the future prospects.

DBS Chairman comments " Our business pipelines are healthy and asset quality robust. We expect confidence to return to markets in the coming year as interest rate increases ease and China reopens. The substantial increase in our ordinary dividend and the special dividend to a total of 92 cents per share reflect our robust earnings profile and the strength of our capital position. This brings the total payout for the financial full year to SGD 2.00 per share.”

UOB CEO comments " The ASEAN region is vibrant with immense long-term potential. We remain positive on the region despite the global economic gloom in the near term. Looking ahead, we are confident that our strategy of seeking growth while ensuring stability will continue to create value for our customers and other stakeholders."

OCBC CEO comments "Looking ahead, our key markets in Asia are expected to remain resilient, and growth is forecasted to outpace the global average in 2023. We are optimistic that the reopening of China and Hong Kong SAR could further spur regional economic growth. We enter the new year with confidence as we drive for sustainable growth and deliver long-term value to our shareholders.”

My Opinion

The the collapse of Silicon Valley Bank in US and negative market sentiment, has resulted in the drop in energy prices. Inflation is likely to ease off. The era of aggressive rate hike by US Fed is more or less over. Taking into account of a softer economy, its time to look at companies with sustainable earnings with manageable debt levels.  If there are no further headwinds apart from the stress face by Credit Sussie, I am in the opinion that the Banking Sector is able to maintain the current level of dividend payouts.

For those who are holding on to SG Banking stocks, keep your fingers crossed that there will be no recession in US. A recession is US will lead to interest rates cut which can be deemed negative to SG Banks' earnings.