Singapore Banks - Maybank Kim Eng 2016-10-03: Uninspiring

Singapore Banks DBS GROUP HOLDINGS LTD D05.SI OVERSEA-CHINESE BANKING CORP O39.SI UNITED OVERSEAS BANK LTD U11.SI

Singapore Banks - Uninspiring

Aug’s banking system data remained uninspiring and further validate our negative view on the sector (See Six Smoking Guns, 7 Sep 2016). System loans growth continued to contract, reflecting a subdued economy.
Despite an increase in deposits, system LDR remained elevated at 98.4% although that has eased from its peak of 111.6% in mid-2014. Maintain Negative.

Despite a 1% MoM improvement in Aug, system loans contracted 5.2% YoY, reflecting weak business and consumer sentiment. Loans have declined for eight consecutive months, the longest streak of contraction since 2005. Loans to businesses -7.5% YoY, with declines led by manufacturing (-6.4% YoY), general commerce (-17.7% YoY) and others (-27.7% YoY) sectors. Consumer loans were lacklustre, mainly weighed down by housing loans (+3.5% YoY) from headwinds in the domestic property market. With fewer lending opportunities, banks are likely to compromise on loan pricing to compete for market share. We estimate less than 2% loan growth in FY16 for Singapore banks.

System deposits grew 2.2% YoY due to DBU (domestic banking unit) deposits (+5.9% YoY). The recent increase in DBU fixed deposits could be partly attributed to the competitive rates that banks offered.
Competition for deposits may intensify as banks need to meet higher LCR (liquidity coverage ratio) requirements. System LDR eased to 98.4% but still suggests a tight liquidity system. As at Jun16, asset quality deteriorated as banks’ special mention and classified exposures worsen to levels not seen since 2009. Our base case is a gradual rise in NPL/credit costs.

Our bigger concern is Singapore banks will face slowing top-line growth and deteriorating asset quality. Of the three banks under coverage, we prefer UOB.

Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-10-03

Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 14.30 Same 14.30

SELL Maintain SELL 7.49 Same 7.49

HOLD Maintain HOLD 18.34 Same 18.34