Banks: Worse India & Sing safety ::CLSA

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Worse India & Sing safety
HDFC Bank appears highly vulnerable, given its strong relative
performance and as peer private bank, ICICI, capitulates towards the
underperformance seen among other Asian banks. With worsening macro
data the likelihood of a credit cycle in India rises, but this bank is not
priced for this. We are adding market capitalisation to our OWT countries
by adding Singapore, from UWT to OWT. With its Asean exposure and
good capital position, with limited China risks (unlike Hong Kong), it
stands out. We prefer UOB given its greater Asean mix and limited China
lending, unlike DBS.
HDFC Bank is vulnerable
q HDFC Bank at 3x PB is outperforming Asian banks, making it vulnerable
q The India PMI is down and other data released also show worsening trends
q ICICI has nearly caught up to Asian banks in past 30 days; a recent change
q HDFC Bank’s accrued interest is up 60% YoY: possibly a sign of rising late loans
Singapore banks move to OWT
q We upgrade Singapore banks to OWT vs Asian banks, from UWT
q Its Asean exposure is a relative positive, as are its high Tier I and low LDR
q Limited China lending is too positive, unlike for HK banks, but this excludes DBS
q Our top recommendation here is UOB, with its above average ROA, Asean lending
Value-trap banks range from 2% to 7%
q We include China, Korea, Japan, India PSU and Taiwan banks as value-trap banks
q The range of market cap to assets is 2% for Japan to 7% for China
q There remains considerable risk on China banks (UWT)
q Korea’s move to IFRS will support valuations (OWT)