Banking – Singapore - UOB Kay Hian 2017-11-01: Sep 17 Monthly Statistics ~ Slight Pick-up In Loan Growth

Banking – Singapore - UOB Kay Hian 2017-11-01: Sep 17 Monthly Statistics: Slight Pick-up In Loan Growth Singapore Banks DBS vs OCBC vs UOB DBS GROUP HOLDINGS LTD D05.SI UNITED OVERSEAS BANK LTD U11.SI OVERSEA-CHINESE BANKING CORP O39.SI

Banking – Singapore - Sep 17 Monthly Statistics: Slight Pick-up In Loan Growth

  • Loan growth for domestic lending picked up from 5.1% yoy in August to 6.2% yoy in September. 
  • Growth in low-cost savings and demand deposits was healthy at 7.8% and 4.5% yoy respectively. Growth in foreign currency loans was also robust at 10.3% yoy. 
  • Interest rates should be marching higher again as the US Fed is widely anticipated to hike Fed funds rate by another 25bp in Dec 17. 
  • Our top pick is OCBC, followed by DBS. Maintain OVERWEIGHT.



WHAT’S NEW


Steady mid-single-digit loan growth. 

  • For domestic banking units (DBU), loans grew 6.2% yoy, a slight pick-up from 5.1% yoy in Aug 17 and 1% mom in Sep 17. Growth was driven by loans to businesses which saw an 8% yoy increase (general commerce: +16.4% yoy, business services: +22.2% yoy and non-bank financial institutions: +15% yoy). For consumer loans, housing loans and car loans grew by 4.2% and 4.4% yoy respectively.
  • Deposits grew by only 3.5% yoy, driven by 7.8% yoy expansion in low-cost savings deposits and 4.5% yoy growth in demand deposits.

Robust growth for foreign currency lending. 

  • For Asian currency units (ACU), loans expanded by a robust 10.3% yoy while deposits grew by a slower 4.4%. Loans to businesses increased by a stronger 12.1% yoy.

Interest rates on the rise. 

  • 3-month SIBOR was stable at 1.13%. 3-month SOR has caught up, gaining 0.11% mom to 1.06% in Oct 17. There should be further upside to SIBOR and SOR given that the US Fed is widely anticipated to hike Fed funds rate by another 25bp in Dec 17. 
  • Yields for 10-year and 15-year government bonds have increased by 13bp compared to 10bp for shorter dated 2-year government bonds.


ACTION 


Maintain OVERWEIGHT. 

  • The normalisation of central banks’ balance sheets coupled with resilient global growth could energise banks’ share prices and lift their valuations towards and above their mid-cycle valuations. Deregulation for banks and efforts towards reducing the corporate tax rate in the US also add to the positive sentiments.

DBS Group Holdings (Rating: BUY / Target Price: S$24.48) 

  • Downsizing of the Fed’s balance sheet and more interest rate hikes in the US are positive for DBS due to its strong deposit franchise with high CASA ratio of 90.4% for Singapore dollar deposits.
  • Management has completed the review of DBS’ dividend policy. Interim dividend for 1H17 has increased from 30 to 33 S cents/share.
  • DBS has exposure of S$3b to 90 smaller offshore support companies. About 60%, or S$1.8b, of these smaller accounts are deemed vulnerable, which could result in new NPLs and higher specific provisions in 2H17.
  • Our target price of S$24.48 is based on 1.27x 2018F P/B, which is derived from the Gordon Growth Model (ROE: 9.9%, COE: 8.0% (Beta: 1.1x) and Growth: 1.0%).

Oversea-Chinese Banking Corp (Rating: BUY / Target Price: S$13.56) 

  • The acquisition of Barclays’ wealth management business in Singapore and Hong Kong was completed in Nov 16 and added AUM of US$13b in 4Q16. AUM grew to US$95b as of Sep 17, which represents organic expansion of 20% ytd.
  • OCBC NISP was the star performer with earnings growth of 23% yoy in 9M17. Loans grew 17% yoy while NIM was attractive at 4.5%.
  • Restructuring at Great Eastern Malaysia to comply with the limit on foreign ownership could generate capital for re-investment in its core commercial banking franchise.
  • Our target price of S$13.56 is based on 1.44x 2018F P/B, which is derived from the Gordon Growth Model (ROE: 10.5%, COE: 7.75% (Beta: 1.05x) and Growth: 1.5%).


SECTOR CATALYSTS 

  • Rising interest rates and bond yields.
  • Easing of pressure on asset quality from the O&G sector.


RISKS 

  • Rapid increase in the federal funds target rate (steep rate hikes) that may trigger capital outflows from countries in Southeast Asia.







Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2017-11-01
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 24.480 Same 24.480
NOT RATED Maintain NOT RATED 99998.000 Same 99998.000
BUY Maintain BUY 13.560 Same 13.560



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