Banks - CGS-CIMB Research 2019-11-30: Foreign Inflows A Likely Precursor To Wealth

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

Banks - Foreign Inflows A Likely Precursor To Wealth

  • System loan growth was lacklustre at +0.4% m-o-m/+4.4% y-o-y, but it was encouraging that domestic expansion started outpacing regional again.
  • Potential upside to wealth management income as FCY deposit inflow over Jul-Sep 2019 (+S$7.1bn) was at its strongest in over two decades.
  • FDs contracted 0.4% m-o-m as 3MSIBOR edged lower. We expect benefits from cheaper funding to start kicking in – moderating NIM compression.
  • Maintain NEUTRAL. Valuations are looking more attractive as trade war noise continues, but should remain supported by c.5% dividend yields. Prefer UOB (SGX:U11).



We expect FY20F loan growth to hover at c.4% amid muted outlook

  • System loan growth was uninspiring at +0.4% m-o-m/+4.4% y-o-y in Oct 2019, but the bright spot in these statistics was the accelerating pace of domestic expansion – 2.6% y-o-y – compared to the year’s low of +1.4% y-o-y in Apr 2019.
  • Two segments drove growth – business loans for general commerce and to financial institutions. System housing loans were flattish as regional mortgage growth offset the continued contraction in domestic housing loans (-1.6% over 9 months now).
  • System loan growth could hover at c.4% in FY20F (FY19: c.5%) amid muted business sentiment, but spillover from the MTI’s more upbeat GDP growth forecast of 0.5-2.5% in FY20 (from 0.5-1% in FY19) provides upside to our forecasts.


Jul-Sep 2019 FCY deposit inflows strongest in over two decades

  • DBU deposits recorded S$7.1bn in foreign currency deposit inflows over Jul-Sep 2019 – the largest increase over the past decade (for perspective, 1H19: -S$950m, FY18: +S$866m, FY17: -S$529m). We believe the diversion of funds into Singapore were fuelled by investors seeking a safe haven given the recent regional geopolitical events.
  • Consistent foreign inflows could persist until some resolution is in sight, but the initial euphoria has since died down, with Oct 2019 foreign inflows normalising to just S$579m. We are optimistic that some of these deposits will be deployed into wealth management products, supporting fee income streams in FY20.


FD contraction to provide some respite in funding costs






Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 28.290 SAME 28.290
HOLD MAINTAIN HOLD 11.940 SAME 11.940
ADD MAINTAIN ADD 29.1 DOWN 29.540



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