Singapore Banks - Maybank Kim Eng 2016-05-30: SG Savings Bonds ~ Scant Interest (Again)

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Singapore Banks - SG Savings Bonds: Scant Interest (Again)

June’s take-up rate remains low

• The Monetary Authority of Singapore (MAS) announced the results for June’s Singapore Savings Bonds (SSB) issuance on Friday. The take-up rate fell to 7.3% this month and YTD issuances amounted to a mere SGD164m. 
• It looks unlikely that SSBs will result in major outflows from banks’ CASA and fixed deposit (FD) accounts. 
• MAS is offering SGD7.6b SSBs for 2015 and 2016, or only ~1.3% of the system’s Domestic Banking Unit (DBU) deposits. 
• Low demand for SSBs could be attributed to: 
  1. declining SGS (Singapore government securities) bond yields translated into lower average returns; and 
  2. banks in Singapore continue to offer competitive FD rates.

Reasons for weak demand

• Rates for SSBs are determined by the average SGS yields. Yields have been coming down for the past five issuances, thereby making SSBs unappealing. 
• SSBs are positioned as safe and long-term saving products for individuals. Early withdrawal will result in lower rates compared to banks’ promotional rates for FDs. As a result, individuals opt for FDs instead if they are only looking to make short-term deposits.

Competitive pricing

• We compares the FD rates across banks in Singapore. Foreign banks, classified as D-SIBs (Maybank, StanChart and HSBC), are pricing more aggressively, at promotional rates of 1.50-2.00%. We think this is part of ongoing efforts to improve their deposit base to meet higher liquidity coverage ratio requirements set by MAS. 
• Against a slow and cautious lending landscape, we doubt banks will be in a hurry to price liabilities aggressively. 
• We expect NIMs for Singapore banks to remain flat as the rise in rates is unlikely to be as pronounced as it was in 2015.

Remain Negative on Singapore banks

• We remain negative on the Singapore banks sector due to: 
  1. slowing topline growth; 
  2. rising NPLs; and 
  3. capital constraints. 
• UOB remains our top pick for its greater ability to reprice rates in an adverse lending environment and lower exposure to commodities/China.

Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-05-30

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