S&P Upgraded Korea and its related entities; DBS’ NPA Increased to 1.34% in 2Q16

9 August 2016

Credit Markets Update

S&P Upgraded Korea and its related entities; DBS’ NPA Increased to 1.34% in 2Q16

¨      APAC USD Credit Market: Asian bond markets advanced as IG spreads and non-IG bond yields tightened 2-6bps to 193.1bps and 6.36% respectively, with investors favouring IG assets. Similarly, the iTraxx AxJ was firmer at 115.2bps (-3.3bps) driven by tighter CDS spreads observed in high grade O&G (Petronas and CNOOC) and sovereign names (Malaysia and Indonesia) as Brent rose 2.5% to USD45/bbl. Elsewhere, UST yields were marginally wider following last week’s solid US jobs print, except for UST 30y at c.2.31% (-1bp), while 10y yields rose to 1.59%. On ratings, Korean SOE credits (highlighted in table 3) were upgraded following S&P upgrade of the sovereign by 1 notch to AA/Sta from AA-. On the other hand, China’s Yuexie Real Estate Investment Trust’s BBB rating has been placed on negative watch due to its delayed deleveraging plans, whereas, Moody’s reviews Sunac China’s B1 rating for downgrade on its weaker credit metrics and results as it issued profit warning for 1H16.

¨      SGD Credit Market: DBS posted weaker asset quality in 2Q16. 1H16 net profit for the largest domestic bank in Singapore stayed stable YoY at SGD2.25bn although we note deterioration in NPA to 1.34% (from 0.97% in FY15), weakening across all major sectors, however this was mitigated by sound allowance coverage of 113% and healthy capitalization with CET1 of 14.2%, compared to the regulatory minimum of 9% (including capital conservation buffer of 2.5%) for domestic systemically important bank (D-SIBs). SOR 2y rose 5bps to 1.52%, while the 5y increased 7bps to 1.80% in tandem with the higher USTs.

¨      MYR Credit Market: Quiet trading session yesterday with merely MYR268m and MYR844m exchanging hands in the corporate and govvies markets. MGS market mostly ended weaker as better-than-expected US non-farm payroll data last Friday makes a case for a Fed rate hike this year. The MGS10y rose 4bps to 3.66% while MYR weakened 0.3% to 4.0365/USD. UOBM sub-debt 5/25c20 was the most active in the corporate market yesterday with MYR40m exchanging hands and ending the day at 4.399% (-30bps).