Singapore Banking Monthly (November 2018) - Phillip Securities 2018-11-01: Loans Modestly Weaker And Bulking Up On Deposits

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Singapore Banking Monthly (November 2018) - Loans Modestly Weaker And Bulking Up On Deposits

Domestic loans rose 4.5% y-o-y, driven by business loans growth of 5.3% y-o-y.
Domestic deposits rose 2.4% y-o-y, fuelled by fixed deposit expansion of 6.8% y-o-y.
Hong Kong’s loans growth continues to decelerate to 7.2% y-o-y in September, the slowest in almost two years.
3-month SIBOR maintained at last month’s decade-high 1.64%.
Maintain BUY for the Singapore Banking Sector.

September’s domestic loans growth was driven by business loans that rose 5.3% y-o-y.
There was healthy loan demand from the building & construction and financial institutions. Building & construction growth sustained last month’s strong performance of 8.6% y-o-y, the highest in 2 years, due to the drawdowns of loans from existing projects in the pipeline.
With the property cooling measures in place, we expect loans to new projects to slow down in 2019.
Meanwhile, Consumer loans growth slowed down to +3.3% y-o-y (the lowest in 17 months) due to slight weaknesses in housing and car loans. Car loans held up this year’s strong momentum with +8.1% y-o-y growth; while housing loans rose +3.5% y-o-y, the fourth consecutive month of decreasing loans growth from the peak of 4.8% y-o-y in May.

In anticipation of steeper interest rates, the banking sector has been shoring up its funding position. Total deposits increased 2.4% y-o-y, the fastest in almost a year, stimulated by a rebound in deposit growth by government & statutory authorities and non-bank financial institutions.
As the banks bulk up in deposits especially the pricier fixed deposits (39.1% of total deposits in September), this could result in a squeeze in NIMs, albeit in the near term.
Fixed deposit growth spiked to 6.8% y-o-y (highest in 2 years) as compared to the ten-year average growth of 2.8% y-o-y. NIM should gradually expand as the banks deploy these stash of deposits as loans.

October’s 3-month SIBOR maintained last month’s high at 1.64%. We expect another rate hike in December from the Federal Reserve. Furthermore, FOMC minutes and dot plots point to three more rate hikes in 2019.
Despite the 52bps rise in 3-month SIBOR this year, mortgage loans growth has remained resilient at 3.5% y-o-y. 3-month SOR contracted slightly, registering 1.602% in October. Average 3-month SOR YTD increased 76.2% y-o-y. Meanwhile, the savings rate in Singapore remained unchanged at 0.16%.
We would expect the banks’ NIM to improve moderately with a time lag, given the expectations of further rate hikes from the Federal Reserve and the increase in the cost of funds in the near term.

Hong Kong’s domestic currency loans grew 12.4% y-o-y (slowest in 16 months). Hong Kong’s property market has been slowing down the past few months with both sales volume and value trending downwards. According to JLL Hong Kong, September’s residential sales volume and value fell 27.4% m-o-m and 20.7% m-o-m respectively.
Uncertainties over the escalating trade war and the overall global slowdown could result in a tapering of loans growth. The upward trajectory of interest rates is expected to continue.

We are positive on the sector’s continued NIM expansion, loans growth and rising dividend as a share price catalyst. The key catalyst for NIM expansion lies in rising interest rates. We believe the banks have the ability to suppress their cost of funds low enough to achieve sequential NIM expansion in the next few quarters.
The long-term trend of NIM expansion may offset downsides in trade loans growth if any.
In conclusion, banks continue to enjoy dual drivers of expanding loans volume and interest margins this year.

Tin Min Ying Phillip Securities Research | https://www.stocksbnb.com/ 2018-11-01

SGX Stock Analyst Report BUY MAINTAIN BUY 33.32 SAME 33.32

BUY MAINTAIN BUY 32.500 SAME 32.500

BUY MAINTAIN BUY 14.900 SAME 14.900