Banks - CGS-CIMB Research 2019-08-30: Domestic Growth Not Holding Up

Singapore Banks - CGS-CIMB Research  | SGinvestors.io UNITED OVERSEAS BANK LTD (SGX:U11) OVERSEA-CHINESE BANKING CORP (SGX:O39) DBS GROUP HOLDINGS LTD (SGX:D05)

Banks - Domestic Growth Not Holding Up

  • Industry loan growth stayed lacklustre at +0.2% m-o-m/+4.4% y-o-y in Jul 2019 as regional loan growth offset the 0.9% m-o-m contraction of domestic credit.
  • Domestic mortgages contracted for a 6th consecutive month, but we think that increased Jul sales volumes could be indicative of better 2H19 growth.
  • Singapore could see five new digital bank licences awarded come mid-2020. Catering to the underserved segment in SG is MAS’s key assessment factor.
  • Maintain NEUTRAL. Key downside risks are more Fed rate cuts, but c.5% yields and attractive valuations are key support pillars for the sector. Prefer UOB (SGX:U11).



Lacklustre Jul statistics in line with lower GDP forecast

  • The industry’s (DBU+ACU) +0.2% m-o-m/+4.4% y-o-y loan growth was held up by regional expansion as the domestic business and consumer segments contracted. The contraction came amid a revision in Singapore’s 2019 GDP growth forecast to 0.0-1.0% (from 1.5-2.5% previously) by the MTI on the back of weakened global economic growth.
  • Aside from the decline in loans to FIs, DBU (mainly SG-based) trade-related segments such as manufacturing and general commerce recorded the largest decline this month.


Stronger 2Q19 home sales should spur mortgage growth in 2H19

  • Domestic mortgage growth declined for a 6th consecutive month (-0.2% m-o-m, -0.8% y-o-y). Broadly, the banks reported shrinking mortgage bases in 1H19 on the back of weaker sales volumes, particularly in the secondary market (its effects are more acute given the quicker drawdown of loans).
  • That said, we are optimistic of seeing better mortgage growth in 2H19 given the 37% q-o-q rise in resale transaction values (excluding ECs, executive condominiums) in 2Q19, according to Urban Redevelopment Authority data. Primary home sales (excluding ECs) were also encouraging, having rebounded +29% q-o-q in 2Q19 (from 3-16% q-o-q contractions in the past 3 quarters).


Deposit growth still fuelled by FDs despite lower rates

  • DBU deposits expanded a touch slower at +0.3% m-o-m and +8.0% y-o-y in Jul 2019. Fixed deposits (FDs) fuelled the rise (+2.7% m-o-m) at the expense of CASA once again (-1.3% m-o-m) despite the slight reduction in FD rates following the Fed rate cut at end-Jul.
  • We expect these rates to decline further as funding pressures ease in tandem with weaker growth sentiment, cushioning the effect of lower rates on NIMs to some extent.


MAS: Digital banks in SG to cater to the underserved segment

  • Applications are open for digital bank licences, but the MAS’s key criteria for applicants is a value proposition that caters to the underserved segment in Singapore – a space not currently catered to by the incumbents.
  • DBS (SGX:D05) and UOB (SGX:U11) have already established their virtual presences with Digibank and TMRW. With the licences being opened up to non-bank players, we believe a digital bank partnership is likely to be in the works for OCBC (SGX:O39).





Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-08-30
SGX Stock Analyst Report ADD MAINTAIN ADD 29.540 SAME 29.540
HOLD MAINTAIN HOLD 12.530 SAME 12.530
HOLD MAINTAIN HOLD 27.590 SAME 27.590



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