Singapore Banks - CGS-CIMB Research 2020-01-01: Foreign Currency Deposits Still Coming Through

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

Singapore Banks - Foreign Currency Deposits Still Coming Through

  • Foreign currency (FCY) deposits picked up 6.5% m-o-m in Nov 2019. In total, FCY deposits rose S$9.4bn over Jun-Nov 2019 (5M2019: -S$1.6bn, 2018: +S$866m).
  • System loans growth remained uninspiring at +0.3% m-o-m/+4.9% y-o-y. Domestic business loans were the key catalysts in Nov; mortgages shrank.
  • Maintain Overweight. Solid asset quality and robust capitalisation underpin c.5% yields. Sustained FCY inflows should boost wealth.
  • DBS (SGX:D05) is our top pick.



Loan growth uninspiring but domestic figures were decent

  • System loan growth in Nov 2019 was driven by domestic business loans, mainly to the general commerce and transport, storage and communication sectors. Contrary to the local banks’ optimism on mortgage growth earlier in FY19, domestic housing loans contracted further by 0.1% m-o-m/-1.5% y-o-y. Notably, this was the 11th straight month of zero/negative growth.
  • Regional loan growth was flattish at 0.1% m-o-m (+6.9% y-o-y). We expect FY19’s full-year loan growth to reach c.5%, just shy of the +5.3% recorded in FY18 despite the seemingly lukewarm showing across local banks this year.


Foreign currency deposits not letting up – we view this positively for wealth

  • Foreign currency (FCY) deposits increased S$1bn (+6.5% m-o-m/+88% y-o-y) in Nov 2019 after a momentary breather in Oct (S$579m).
  • Coinciding with the rise in regional geopolitical uncertainties in 2H19, FCY deposits rose S$9.4bn over Jun-Nov 2019 (2018: +S$866m, 2017: -S$529m) to S$16.5bn – a record high since the availability of MAS data since 1991. While the stickiness of these deposits in the financial system could be a point of contention, we are positive that a portion of this will be deployed into wealth management products given Singapore’s status as a regional haven of safety.


CASA growth trumped that of FDs – we expect this to continue

  • System DBU deposit growth bounced strongly to 0.9% m-o-m/+8.5% y-o-y in Nov 2019. Most of this was fuelled by CASA – a welcome reversal from the aggressive FD growth over most of FY19. We expect CASA growth strength to continue into FY20 as 3MSIBOR slides further from its current c.1.77%, as 3MLIBOR had prior to the Fed rate cut in Jul 2019.
  • To date, 3MSIBOR has fallen just c.30bp from its peak of 2% in mid-2019 while 3MLIBOR has dipped c.90bp from 2.8% in Jan 2019. We expect FD rates to reduce in tandem with SGD rates, and for this to feed into NIMs in FY20.


Maintain Overweight; sector valuations attractive at 1.1x FY20 P/BV

  • We reiterate our Overweight call on banks as sector valuations have receded to a more attractive 1.1x FY20 P/BV.
  • Solid credit quality management underscores dividend visibility. We think rate cut pessimism should dissipate further while regional geopolitical tensions smoothen out.
  • DBS (SGX:D05) is our preferred pick for the sector as a beneficiary of wealth management flows.





Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-01-01
SGX Stock Analyst Report ADD MAINTAIN ADD 28.290 SAME 28.290
ADD MAINTAIN ADD 29.100 SAME 29.100
HOLD MAINTAIN HOLD 11.940 SAME 11.940



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