OCBC TREASURY RESEARCH - Asian Credit Daily Monday, May 9, 2022
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OCBC TREASURY RESEARCH Asian Credit Daily Monday, May 9, 2022 Market Commentary ▪ The SGD SORA curve traded higher on Friday, with shorter tenors trading 12-15bps higher, belly tenors trading 15- 17bps higher, and longer tenors trading 17-18bps higher. ▪ There were moderate flows in SGD corporates on Friday, with flows in HPLSP 4.4%-PERPs and AAREIT 5.375%- PERPs. ▪ UST 10Y yields traded 9bps higher on Friday to 3.13%, and broke above 3.14% at one point intraday, for the first time since 2018. This came amidst the release of an overall robust set of employment data by the US Bureau of Labor Statistics for April, indicating a tighter labour market and supporting market expectations for further Fed tightening. Notably, nonfarm payrolls increased more than expected by 428,000 in April, above Bloomberg median consensus estimates of a 380,000 increase. Inflation-wise, average hourly earnings increased less than expected on a m/m basis by 0.3% m/m, below Bloomberg median estimates of a 0.4% m/m increase. The unemployment rate remained unchanged m/m at 3.6%, though the labour force participation rate fell by 0.2% m/m to 62.2%, below Bloomberg median estimates of 62.5%. Credit Summary: ▪ Industry Outlook – Singapore Residential Property: Piccadilly Grand sold 315 out of 407 units (77% of total units) at an average selling price of SGD2150 psf over its weekend launch. Meanwhile, an Additional Buyer’s Stamp Duty (“ABSD”) of 35% will be imposed on transfer of residential property into a living trust which will be imposed from today. We do not expect the closure of the gap in ABSD to significantly impact the property market, while we think the strong sales achieved at Piccadilly Grand is testimony of continued strength in the Singapore property market despite rising interest rates, supported by strong buying power amongst Singaporeans. ▪ Westpac Banking Corporation (“Westpac”) | Issuer Profile: Positive (2): Westpac announced its 1HFY2022 results for the 6 months ended 31 March 2022. We believe that the outlook for Westpac is constructive, although mixed with caution. We maintain Westpac’s Positive (2) issuer profile – while we will continue to monitor the impact of rising costs and margin pressure, we expect earnings to remain resilient and support Westpac’s current capital position, given its strategy execution and conservative approach to the operating environment.
OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Industry Outlook – Singapore Residential Property:
▪ Piccadilly Grand sold 315 out of 407 units (77% of total units) at an average selling price of SGD2150
psf over its weekend launch. The development, which is linked to Farrer Park MRT station, is a joint
project by City Developments Ltd and MCL Land.
▪ Reportedly, ~90% of the buyers are Singaporeans, with the remainder made up by permanent
residents and foreigners. According to EdgeProp, the pricing of SGD2150 psf is a new benchmark for
District 8.
▪ Meanwhile, an Additional Buyer’s Stamp Duty (“ABSD”) of 35% will be imposed on transfer of
residential property into a living trust which will be imposed from today while previously ABSD may
or may not be payable upon transfer, depending on the profile of the beneficial owner of the
residential property. In particular, if there is no identifiable beneficial owner at the time of transfer,
previously ABSD did not apply. The imposition of ABSD is intended to close this gap, according to
Ministry of Finance.
▪ We do not expect the closure of the gap in ABSD to significantly impact the property market while we
think the strong sales achieved at Piccadilly Grand is testimony of continued strength in the Singapore
property market despite rising interest rates, supported by strong buying power amongst
Singaporeans. (Company, Business Times, OCBC)
Page 2OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Westpac Banking Corporation (“Westpac”) | Issuer Profile: Positive (2):
▪ Westpac announced its 1HFY2022 results for the 6 months ended 31 March 2022. Overall
performance benefited from solid operating expense performance which offset weaker net operating
income as well as higher impairment charges on a h/h and y/y basis. Overall net profit before tax was
AUD4.7bn, up 37% h/h and down 7% y/y.
▪ Of note is the AUD139mn in impairment charges for 1HFY2022, materially up from the AUD218mn
and AUD372mn impairment benefits in 2HFY2021 (ended 31 September 2021) and in 1HFY2021
respectively.
o The prior period benefits were due to large reversals in collectively assessed provisions of
AUD777mn and AUD640mn as at 31 September 2021 and 31 March 2021 that were raised during
FY2020 and FY2021 for the pandemic.
o That said, Westpac felt the need to raise additional collectively assessed provisions for a new set
of risks tied to current operating conditions and elevated uncertainty that saw a reweighting of
economic scenarios with a 45% weight towards a downside scenario (previously 40%) and a 50%
chance of the base case scenario (previously 55%).
o Key downside risks include as geopolitical and economic impacts from the Russia-Ukraine conflict
and lingering COVID-19 impacts, supply chain disruptions, capacity constraints and labour
shortages, rising inflation and interest rates, and exposures to flood prone areas in New South
Wales and Queensland.
▪ That said, underlying asset quality was improved in 1HFY2022 compared to prior periods with lower
new individually assessed provisions and most asset quality metrics back to pre-COVID levels.
Improvement was seen in the mortgage portfolio with lower write offs due to lower delinquencies as
well as a reduction in the consumer unsecured portfolio. The stressed exposures to total committed
exposures ratio was 1.10% as at 31 March 2022 (-26bps) while the ratio of gross impaired exposures
to gross loans fell 7bps h/h to 0.23% as at 31 March 2022. The ratio of gross impaired provisions to
gross impaired exposures was down 60bps h/h to 48% over the same period, mostly due to lower
individually assessed provisions. Supporting the movements in asset quality metrics were:
o Lower watchlist and substandard exposures from rating upgrades and refinancing of some higher
risk institutional facilities;
o Reduced 90 days past due and not impaired exposures, mostly in mortgages; and
o A fall in impaired exposures through low levels of new impaired assets and the partial write-off of
the Forum Finance exposure.
▪ Otherwise, net operating income or revenue was down 3% h/h and 4% y/y to AUD10.23bn. This was
due to due to competitive pressures on net interest margins (down 15bps h/h and y/y to 1.91% in
1HFY2022) in the home loan market, the low-rate environment, a change in product mix to fixed rate
lending and higher liquid assets that offset higher average interest earning assets (+6% h/h and +7%
y/y). Non-interest income was also down largely due to lower gains on asset sales and revaluations as
well as weaker performance in the Life insurance business from unfavourable valuations and
investment losses.
(Continued on the next page) Page 3OCBC TREASURY RESEARCH
Asian Credit Daily
Credit Headlines
Westpac Banking Corporation (“Westpac”) | Issuer Profile: Positive (2):
▪ As mentioned above, off-setting the fall in net operating income was a 27% h/h and 10% y/y decline
in operating expenses due to lower notable items (defined as specific large infrequent items ) such as
provisions for remediation (estimated customer refunds, payments and associated costs), intangible
item write-downs, and asset sales and revaluations. This offset higher staff expenses and
restructuring costs. In its 1QFY2022 trading update, Westpac announced a new organizational
structure including two new services divisions and the consolidation of its chief risk, financial crime
and compliance roles into one to streamline operations and solidify its focus on improving risk
culture. Westpac is currently pursuing a cost reset program focused on portfolio simplification (sale
of non-core businesses), business simplification (digitilisation and reduce products offered) and
organizational simplification (reduce corporate space and offshore locations). Given Westpac’s solid
cost performance, Westpac is retaining its AUD8bn cost reduction target by fiscal 2024.
▪ Westpac’s CET1 ratio fell 99bps h/h to 11.33% as at 31 March 2022 as non-credit risk related risk
weighted asset growth (mostly interest rate risk in the banking book) offset earnings whilst
shareholder returns through dividends (-48bps) and AUD3.5bn share buyback (-76bps) had a 124bps
negative impact to the capital position. That said, the level remains within Westpac’s target CET1
operating range for 2023 of 11.0-11.5% which includes the 10.25% minimum regulatory requirement
and a 0.75% management buffer. On an internationally comparable basis, the CET1 ratio was 17.36%
as at 31 March 2022.
▪ Westpac’s outlook is constructive although mixed with caution. It is forecasting Australia’s economic
growth at 4.5% in 2022 before slowing to 2.5% in 2023. Meanwhile, credit growth is expected to be
robust at 5.7% in 2022 before slowing to 4.3% in 2023 amidst slowing demand for housing and an
expected fall in consumer spending.
▪ We maintain Westpac’s Positive (2) issuer profile – while we will continue to monitor the impact of
rising costs and margin pressure, we expect earnings to remain resilient and support Westpac’s
current capital position given its strategy execution and conservative approach to the operating
environment. (Company, OCBC)
Page 4OCBC TREASURY RESEARCH
Asian Credit Daily
Key Market Movements
1W chg 1M chg
9-May 9-May 1W chg 1M chg
(bps) (bps)
iTraxx Asiax IG 128 6 20 Brent Crude Spot ($/bbl) 110.86 3.05% 7.86%
iTraxx SovX APAC 35 2 10 Gold Spot ($/oz) 1,879.32 0.87% -3.80%
iTraxx Japan 73 5 14 CRB 311.32 0.99% 4.40%
iTraxx Australia 102 5 18 GSCI 769.37 1.67% 6.80%
CDX NA IG 86 3 14 VIX 30.19 -9.61% 42.67%
CDX NA HY 101 -1 -3 CT10 (%) 3.127% 14.58 42.65
iTraxx Eur Main 96 7 18
iTraxx Eur XO 461 28 86 AUD/USD 0.702 -0.50% -5.42%
iTraxx Eur Snr Fin 107 6 18 EUR/USD 1.052 0.12% -3.34%
iTraxx Eur Sub Fin 205 7 37 USD/SGD 1.390 -0.27% -1.80%
iTraxx Sovx WE 6 1 2 AUD/SGD 0.975 0.19% 3.84%
USD Swap Spread 10Y 7 -1 0 ASX 200 7,128 -2.99% -4.69%
USD Swap Spread 30Y -26 -2 -9 DJIA 32,899 -0.24% -5.25%
US Libor-OIS Spread 16 0 -3 SPX 4,123 -0.21% -8.13%
Euro Libor-OIS Spread 6 -1 2 MSCI Asiax 657 -4.19% -8.10%
HSI 20,002 -1.35% -8.55%
China 5Y CDS 84 4 15 STI 3,289 -1.37% -2.78%
Malaysia 5Y CDS 97 5 23 KLCI 1,561 -1.58% -2.89%
Indonesia 5Y CDS 128 5 33 JCI 7,229 -0.65% 3.10%
Thailand 5Y CDS 50 3 7 EU Stoxx 50 3,629 -4.57% -5.94%
Australia 5Y CDS 22 3 7 Source: Bloomberg
Page 5OCBC TREASURY RESEARCH
Asian Credit Daily
New Issues
▪ There were no new issuances on Friday.
Temporary Suspension
▪ Do note that our official coverage on City Developments Limited and OUE Commercial Trust are
temporarily suspended due to OCBC’s other business.
Page 6OCBC TREASURY RESEARCH Asian Credit Daily This publication is solely for information purposes only and may not be published, circulated, reproduced, or distributed in whole or in part to any other person without our prior written consent. This publication should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities/instruments mentioned herein. Any forecast on the economy, stock market, bond market and economic trends of the markets provided is not necessarily indicative of the future or likely performance of the securities/instruments. Whilst the information contained herein has been compiled from sources believed to be reliable and we have taken all reasonable care to ensure that the information contained in this publication is not untrue or misleading at the time of publication, we cannot guarantee and we make no representation as to its accuracy or completeness, and you should not act on it without first independently verifying its contents. The securities/instruments mentioned in this publication may not be suitable for investment by all investors. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. This publication may cover a wide range of topics and is not intended to be a comprehensive study or to provide any recommendation or advice on personal investing or financial planning. Accordingly, they should not be relied on or treated as a substitute for specific advice concerning individual situations. Please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation, or particular needs before you make a commitment to purchase the investment product. OCBC and/or its related and affiliated corporations may at any time make markets in the securities/instruments mentioned in this publication and together with their respective directors and officers, may have or take positions in the securities/instruments mentioned in this publication and may be engaged in purchasing or selling the same for themselves or their clients, and may also perform or seek to perform broking and other investment or securities-related services for the corporations whose securities are mentioned in this publication as well as other parties generally. There may be conflicts of interest between Oversea-Chinese Banking Corporation Limited (“OCBC Bank”), Bank of Singapore Limited, OCBC Investment Research Private Limited, OCBC Securities Private Limited or other members of the OCBC Group and any of the persons or entities mentioned in this report of which OCBC Bank and its analyst(s) are not aware due to OCBC Bank’s Chinese Wall arrangement. This report is intended for your sole use and information. By accepting this report, you agree that you shall not share, communicate, distribute, deliver a copy of or otherwise disclose in any way all or any part of this report or any information contained herein (such report, part thereof and information, “Relevant Materials”) to any person or entity (including, without limitation, any overseas office, affiliate, parent entity, subsidiary entity or related entity) (any such person or entity, a “Relevant Entity”) in breach of any law, rule, regulation, guidance or similar. In particular, you agree not to share, communicate, distribute, deliver or otherwise disclose any Relevant Materials to any Relevant Entity that is subject to the Markets in Financial Instruments Directive (2014/65/EU) (“MiFID”) and the EU’s Markets in Financial Instruments Regulation (600/2014) (“MiFIR”) (together referred to as “MiFID II”), or any part thereof, as implemented in any jurisdiction. No member of the OCBC Group shall be liable or responsible for the compliance by you or any Relevant Entity with any law, rule, regulation, guidance or similar (including, without limitation, MiFID II, as implemented in any jurisdiction). Co.Reg.no.:193200032W Page 7
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