Banking – Singapore - UOB Kay Hian 2017-12-01: Oct 17 Monthly Statistics ~ Acceleration In Loans To Businesses

Banking – Singapore - UOB Kay Hian 2017-12-01: Oct 17 Monthly Statistics: Acceleration In Loans To Businesses Singapore Banking Stocks DBS vs OCBC vs UOB DBS GROUP HOLDINGS LTD D05.SI OVERSEA-CHINESE BANKING CORP O39.SI UNITED OVERSEAS BANK LTD U11.SI

Banking – Singapore - Oct 17 Monthly Statistics: Acceleration In Loans To Businesses

  • Oct 17 saw a slight 0.6ppt mom acceleration in loan growth to 6.8% yoy, driven by stronger 9% yoy growth in loans to businesses. 3-month SOR caught up by 12bp mom and moved to parity with 3-month SIBOR at 1.13%. 
  • A third rate hike in December is almost a certainty. Further upward movements in SOR and SIBOR would be positive for NIMs. 
  • Our top pick is OCBC, followed by DBS. Maintain OVERWEIGHT.



WHAT’S NEW


Moderate pick-up driven by loans to businesses. 

  • For Domestic Banking Units (DBU), loans grew 6.8% yoy, a slight pick-up from 6.2% yoy in Sep 17, and 1.4% mom in Oct 17.
  • Growth in loans to businesses accelerated to 9% yoy (general commerce: +13.6% yoy, business services: +17.7% yoy and non-bank financial institutions: +25.5% yoy). In consumer loans, housing loans and car loans grew at a steady pace of 4.1% and 4.5% yoy respectively.
  • Deposits grew only 3% yoy, driven by expansion in low-cost savings deposits and demand deposits of 6.8% yoy. Fixed deposits contracted 2.4% yoy.

Continued robust growth for foreign currency lending. 

  • For Asian Currency Units (ACU), loans expanded by a robust 9.8% yoy while deposits grew by a slower 4.2% yoy.
  • Loans to businesses increased by a stronger 10.9% yoy.

SOR caught up with SIBOR. 

  • 3-month SIBOR stayed put at 1.13%. 3-month SOR caught up, gaining 12bp mom to 1.13% in Nov 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 (next FOMC meeting on 12-13 December). 
  • Yields for shorter dated government bonds are rising. Yield for 2-year government bonds increased by 7bp mom to 1.49% in Nov 17.


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 (BUY/S$24.43/Target: S$26.10) 

  • 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.
  • DBS was recognised as the world’s best digital bank by Euromoney Awards for Excellence 2016. It beat competition from BBVA, Citigroup and ING as digital innovation permeates every part of the bank and is deeply ingrained in the bank’s 22,000 staff.
  • Our target price of S$26.10 is based on 1.38x 2018F P/B, which is derived from the Gordon Growth Model (ROE: 10.5%, COE: 8.0% (Beta: 1.1x) and Growth: 1.5%).

Oversea-Chinese Banking Corp (BUY/S$12.45/Target: S$13.56) 

  • The acquisition of Barclays’ wealth management businesses 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.
  • 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/ 2017-12-01
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 26.100 Same 26.100
BUY Maintain BUY 13.560 Same 13.560
NOT RATED Maintain NOT RATED 99998.000 Same 99998.000



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