Asian bank research and consultancy, Tabbush Report

Daniel Tabbush

Asian bank research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

<ul>
<li>During 1H24 CGF expects to sell its bank for ~AUD36m which could include a AUD11m gain and allow to free-up bank capital of around AUD40-50m.</li>
<li>Return on capital is now at the highest it has been since FY10 at 6.2% with a substantial 160bps increase in normalized ROE in 2H23 YoY to 13.1%</li>
<li>85% market share of annuity FUM from 50% about 10 years ago, operating in system with strong forced savings in superannution funds now at AUD3.5tr up 91% over 10 yrs.</li>
</ul>


During 1H24 CGF expects to sell its bank for ~AUD36m which could include a AUD11m gain and allow to free-up bank capital of around AUD40-50m.
Return on capital is now at the highest it has been since FY10 at 6.2% with a substantial 160bps increase in normalized ROE in 2H23 YoY to 13.1%
85% market share of annuity FUM from 50% about 10 years ago, operating in system with strong forced savings in superannution funds now at AUD3.5tr up 91% over 10 yrs.


Challenger (CGF AU) - Bank Sale 1H24 | ROC Highest in 23 Yrs | 85% Market Share Annuity FUM

Thematic (Sector/Industry)

<ul>
<li>Australia domestic credit growth is now at -2.2% YoY in January 2024, the worst figure since August 2021. </li>
<li>There are negative implications for the delta of net interest income for Australia's banks as loan growth moves negative.</li>
<li>Risk of rising credit costs is higher, not only from worsening insolvencies with corporates, but also with rising mortgage bad loans. </li>
</ul>


Australia domestic credit growth is now at -2.2% YoY in January 2024, the worst figure since August 2021. 
There are negative implications for the delta of net interest income for Australia's banks as loan growth moves negative.
Risk of rising credit costs is higher, not only from worsening insolvencies with corporates, but also with rising mortgage bad loans. 


Australia Banks - Negative Loan Growth Reaches August 2021 Levels

National Australia Bank / Equity Bottom-Up

<ul>
<li>NAB holds significantly more maturing debt in the coming year than its largest 3 peer banks in Australia and also more than the 3 banks in Singapore, by comparison</li>
<li>The bank has grown its business loans aggressively, which can see lumpy bad loans in a poor economy, with high unseasoned loans, yet its HoH credit costs were flat</li>
<li>CRE loans are meaningful at NAB, adding another risk to maturing debt at the top of the rate cycle with what appears to optimistic credit costs in recent results</li>
</ul>


NAB holds significantly more maturing debt in the coming year than its largest 3 peer banks in Australia and also more than the 3 banks in Singapore, by comparison
The bank has grown its business loans aggressively, which can see lumpy bad loans in a poor economy, with high unseasoned loans, yet its HoH credit costs were flat
CRE loans are meaningful at NAB, adding another risk to maturing debt at the top of the rate cycle with what appears to optimistic credit costs in recent results


NAB - Maturing Debt AUD40bn | At Top of Rate Cycle | With High Unseasoned Loans, CRE Loans

<ul>
<li>
<a href="https://www.smartkarma.com/entities/asx-ltd" target="_blank" data-smartkarma-citation="entities:552:1" rel="noopener">ASX Ltd (ASX AU)</a> is seeing weakness across key revenue items with best delta in what is non- core, net interest income. Suddenly, its operating cash flow is negative. </li>
<li>New listings are down from 217 companies to 57 companies YoY to FY23 and their market capitalization is down from AUD59bn to AUD3bn YoY to FY23. </li>
<li>SG&amp;A costs seem to be rising structurally now at 28% of gross profit in FY23 compared with 23% in FY22 and compared with 17-19% in preceding years. </li>
</ul>



ASX Ltd (ASX AU) is seeing weakness across key revenue items with best delta in what is non- core, net interest income. Suddenly, its operating cash flow is negative. 
New listings are down from 217 companies to 57 companies YoY to FY23 and their market capitalization is down from AUD59bn to AUD3bn YoY to FY23. 
SG&amp;A costs seem to be rising structurally now at 28% of gross profit in FY23 compared with 23% in FY22 and compared with 17-19% in preceding years. 


ASX - New Listings Big Decline, SG&A Costs Up Substantially, Best Income Delta Is Non-Core

<ul>
<li>The results for <a href="https://www.smartkarma.com/entities/bank-of-queensland-ltd" target="_blank" data-smartkarma-citation="entities:16606:1" rel="noopener">Bank Of Queensland (BOQ AU)</a> are illustrative of risks for the mainstream banks in Australia and market expectations</li>
<li>Even with almost all residential mortgage loans, BOQ's credit costs rose from AUD13m to AUD71m YoY and Pillar 3 data shows mortgage NPLs up nearly 10% in past 2 months</li>
<li>Net interest income only +6% YoY and -8% HoH, with operating costs +8% YoY and fee income down, there is nothing core holding the P&amp;L together</li>
</ul>


The results for Bank Of Queensland (BOQ AU) are illustrative of risks for the mainstream banks in Australia and market expectations
Even with almost all residential mortgage loans, BOQ's credit costs rose from AUD13m to AUD71m YoY and Pillar 3 data shows mortgage NPLs up nearly 10% in past 2 months
Net interest income only +6% YoY and -8% HoH, with operating costs +8% YoY and fee income down, there is nothing core holding the P&amp;L together


BOQ - Illustrative of Australia Bank Risks Even for Nearly Pure Mortgage Lender and Mkt Expectations

Australia

Challenger Limited is an investment management firm  The Company offers annuities and other retirement income products as well as manages assets for domestic and international clients.

Challenger Ltd (CGF AU)

Australia Banks - Negative Loan Growth Reaches August 2021 Levels

Australia's domestic loan growth has just turned negative 2.2% in January 2024, the worst showing since August 2021, with negative implications for...

Daniel Tabbush

NAB - Maturing Debt AUD40bn | At Top of Rate Cycle | With High Unseasoned Loans, CRE Loans

NAB has more maturity debt than large peers, which can mean worse NIM impact when refinancing at the top of the rate cycle. Business loan growth...

Daniel Tabbush

ASX - New Listings Big Decline, SG&A Costs Up Substantially, Best Income Delta Is Non-Core

New listings in major decline, operating cash flow just turned negative, with SG&A moving well higher. Key profit delta is non-core and not likely...

Daniel Tabbush

BOQ - Illustrative of Australia Bank Risks Even for Nearly Pure Mortgage Lender and Mkt Expectations

Results today show the rampant deterioration in credit metrics, causing profit to fall 70% YoY, with other factors also at play. Read-through to...

Daniel Tabbush

Challenger (CGF AU) - Bank Sale 1H24 | ROC Highest in 23 Yrs | 85% Market Share Annuity FUM

Bank divestment in 1H24 can see gains, capital release, and better focus on life and funds. Improving returns are substantial, into a growing...

Daniel Tabbush

Australia Banks - Negative Loan Growth Reaches August 2021 Levels

Australia's domestic loan growth has just turned negative 2.2% in January 2024, the worst showing since August 2021, with negative implications for...

Daniel Tabbush

NAB - Maturing Debt AUD40bn | At Top of Rate Cycle | With High Unseasoned Loans, CRE Loans

NAB has more maturity debt than large peers, which can mean worse NIM impact when refinancing at the top of the rate cycle. Business loan growth...

Daniel Tabbush

ASX - New Listings Big Decline, SG&A Costs Up Substantially, Best Income Delta Is Non-Core

New listings in major decline, operating cash flow just turned negative, with SG&A moving well higher. Key profit delta is non-core and not likely...

Daniel Tabbush

BOQ - Illustrative of Australia Bank Risks Even for Nearly Pure Mortgage Lender and Mkt Expectations

Results today show the rampant deterioration in credit metrics, causing profit to fall 70% YoY, with other factors also at play. Read-through to...

Daniel Tabbush