Singapore Banks - DBS Research 2019-08-30: Loan Growth Moderates

DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)

Singapore Banks - Loan Growth Moderates

Having seen strong m-o-m loan growth from Mar-May’19, loan growth moderated through Jun-Jul’19.
Business loan growth continues to outpace consumer loans, led by building and construction, transportation, business services loans.
Deposits continue to outgrow loans amidst falling cost of deposits.
UNITED OVERSEAS BANK (UOB, SGX:U11) remains our top pick in the sector.

Having seen strong m-o-m industry loan growth (DBU + ACU1) from Mar-May’19 of +1.0% to +1.3% m-o-m, loan growth started to moderate to +0.3% m-o-m in Jun’19. For Jul’19, loan growth continued to moderate to +0.2% m-o-m/+4.4% y-o-y with ACU loans driving the growth as DBU loans saw their first m-o-m decline since Jan’19.
Year-to-date, loan book grew +3.7% for the first seven months, which is still on track to our mid-single-digit expectations for the full year.

During the month, business loans grew +0.4% m-o-m/+5.6% y-o-y while consumer loans contracted by 0.1% m-o-m/+0.9% y-o-y, on the back of mortgage book contraction. Business loans growth was led by building and construction (+1.7% m-o-m), transportation (+1.0% m-o-m) and business services loans (+7.7% m-o-m).
As mortgage loans continued to decline for the sixth consecutive month (-0.2% m-o-m), DBS Group Research still does not expect the mortgage book to see a deep contraction unless there is an accelerated slowdown in the economy with massive unemployment.

Deposit growth of +0.3% m-o-m/ +8.0% y-o-y still outpaced loan growth as demand for fixed deposits remained high. Notably, in the last two months, cost of fixed deposits across banks in Singapore has fallen from the peak of c.2.0% to c.1.7% currently.
We believe lower cost of funding for banks may buffer some impact from lower loan yields should benchmark rates and loan yields fall.

We still like UOB as the top pick in the sector as it continues to offer attractive dividend yield of c.5%. UOB has the least exposure to Greater China among the local banks, lowest sensitivity of falling interest rates to NIM, as well as a more defensive wealth franchise.
We believe its strong balance sheet will continue to support its growth momentum into 2H19 as it revises its loan growth upwards.

Rui Wen LIM DBS Group Research | https://www.dbsvickers.com/ 2019-08-30

SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000

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BUY MAINTAIN BUY 29.200 SAME 29.200