Dah Sing Banking Group's loan growth to inch up 8.3% in 2H13

Here's what will boost this growth.

According to Maybank Kim Eng, it expects Dah Sing Banking Group’s (DSB) loan growth to remain solid in 2H13 (+8.3% HoH in 1H13), mainly driven by commercial loans and cross-border trade finance.

Here's more:

We raise our loan growth forecast from 9.7% YoY to 14.2% YoY for 2013. Management expects commercial loan demand will remain healthy in 2014 but SMEs have not yet decided to increase their credit demand. DSB will continue to monitor its liability costs to avoid severe competition for deposits.

It may also consider lengthening the duration of its HKD/USD assets after the QE tapering. We therefore raise our NIM forecast from 1.70-1.73% to 1.76-1.77% for 2013-14.

Room to expand net fees growth. DSB continued to diversify into securities brokerage, bancassuance, personal wealth management and corporate treasury management businesses in 2H13.

It may consider introducing interest-rate-linked structured products and interest rate swap products to retail and corporate customers for hedging of interest rate risk under the QE tapering.

We forecast net fees to grow at a CAGR of 17.4% during 2012-15. With ongoing tight control on new hiring and administrative and marketing expenses, we expect its cost- income ratio to fall below 50% by 2015.

Expecting stable asset quality in 2H13. There was a small amount of new NPLs related to SME manufacturing loans in China during 2H13. Still, with benign asset quality of domestic loans, we forecast credit costs to stay at 0.3% in 2H13 (0.31% in 1H13).

The bank has adopted an early-warning credit risk system to strengthen its risk management. Besides, it has turned more selective in direct China loans. We forecast credit costs to fall to 0.22% in 2014.