Singapore Banks - Maybank Kim Eng 2017-07-03: Positive Momentum, Albeit Moderated

Singapore Banks - Maybank Kim Eng 2017-07-03: Positive Momentum, Albeit Moderated Singapore Banking Sector Bank Loans Statistics DBS GROUP HOLDINGS LTD D05.SI OVERSEA-CHINESE BANKING CORP O39.SI UNITED OVERSEAS BANK LTD U11.SI

Singapore Banks - Positive Momentum, Albeit Moderated

Upside risk to our loan growth assumption 

  • System loan growth in May moderated to +0.4% MoM/+5.1% YoY (Apr: +1% MoM/+6.4% YoY), in line with our expectation. Our loan growth assumption for Singapore banks is +6% YoY for FY17, as banks stand to benefit from the recovery in the domestic economy. 
  • We see upside risk to our assumption if the momentum is sustained. We think it is feasible for Singapore banks to reach their guidance of mid-single digit loan growth for FY17. 
  • As at 1Q17, the banks’ loan growth in Singapore (as a proxy) was between 6-8%, slightly higher than the system’s.

Corporate and consumer loan growth moderated 

  • Corporate loan growth moderated to +0.8% MoM/+6.6% YoY in May (Apr: +1.1% MoM/+7.8% YoY). The increase in loan growth was led by lending to Financial Institutions (FI), at -0.1% MoM/+19.1% YoY. YTD, only the FI and Business Services (BS) sectors registered double-digit loan growth. 
  • The recovery in non-oil re-exports (proxy for wholesale trade services) is consistent with the increase in lending to General Commerce (GC), +2.9% MoM/+6.4% YoY. 
  • Manufacturing loans contracted, at -2.2% YoY. Also, lending to Transport, Storage, Communication (TSC), Others, Professional and Private Individuals (PPI) and BS sectors moderated on a YoY basis. 
  • Consumer lending eased to -0.6% MoM/+1% YoY from Apr’s +0.7% MoM/+2.5% YoY. Despite some surprise revisions to property cooling measures by the government in Mar, housing loan growth has so far remained largely stable at +0.2% MoM/+4.1% YoY.

System LDR likely to stay above 100% 

  • System deposits grew +0% MoM/+4.1% YoY in May (Apr: +0.3% MoM/+5.2% YoY). Domestic Banking Unit (DBU) deposit growth was driven by CASA deposits, which grew +8.8% YoY. 
  • Banks continued to pay for sticky CASA deposits and offer less aggressive FD promotions (see CASA: Good or Bad?). System LDR is now 100.1% (Apr: 99.7%) as loan growth outpaced deposit growth. System LDR is likely to stay at above 100% as loan demand recovers.

Maintain NEUTRAL 

  • Maintain NEUTRAL on Singapore banks. Singapore banks are currently trading at ~1.1x forward P/BV. Valuations appear to be fair in view of tail risks from O&G and stable NIMs. 
  • DBS remains our preferred pick as we are positive on its ability to manage liability costs to drive pre-provision profits. 
  • Risks to our call are: 
    1. NIM improvement from higher rates; 
    2. higher non-interest income; and 
    3. benign credit costs.

Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-07-03
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 19.180 Same 19.180
HOLD Maintain HOLD 9.850 Same 9.850
HOLD Maintain HOLD 20.800 Same 20.800