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

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


Uninspiring Aug-16 

  • 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.


Loans in deceleration mode 

  • 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.


Stronger deposit growth, asset quality deteriorated 

  • 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.


Maintain Negative sector view 

  • 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



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