Singapore Banks - A Challenging Year
2016 was a challenging year
- Dec banking system data reflected a challenging year.
- While system loans grew in the month for the first time in 2016, it was partly due to the low base in Dec 2015.
- Asset quality continued to worsen, as the percentage of exposures classified in the doubtful and loss categories are now at their highest level since 4Q09.
- Maintain Negative sector view.
Loan growth lethargic despite slight improvement
- Dec system loans rose 0.5% YoY (Nov: -1.2%), the first YoY increase in 2016. Improvement in lending was broad-based across all sectors, mainly from manufacturing, building & construction, and financial institutions.
- Corporate loans grew 0.6% YoY (Nov: -1.9%). However, consumer sentiment remained weak, as consumer loans rose only 0.2% YoY (Nov: +0.7%), the slowest pace since Sep 2009.
- System deposits grew 4% YoY (Nov: +4.9%), with Domestic Banking Unit (DBU) and Asian Currency Unit (ACU) deposit growth at 6.5% and 1.5%, respectively (ACU growth in SGD terms). With that, system LDR tightened to 99.1% (Nov: 97.8%).
Worsening asset quality
- As of 4Q16, the percentage of exposures classified as pass was at its lowest level since disclosure started in 2009. Aside from O&G, SMEs are more likely to show weakness in asset quality in a prolonged downturn.
- Our view is Singapore banks are likely to report higher provisions to cover rising NPLs.
Maintain Negative sector view
- We maintain our NEGATIVE view on Singapore banks as the overall outlook is likely to remain challenging.
- We maintain our forecasts, TPs and recommendations pending upcoming results in mid-Feb; OCBC, DBS and UOB will report 4Q16 results on 14, 16 and 17 Feb, respectively.