DBS GROUP HOLDINGS LTD (SGX:D05)
OVERSEA-CHINESE BANKING CORP (SGX:O39)
UNITED OVERSEAS BANK LTD (SGX:U11)
Banks - Rebounding From Weaker Balances
- System loans climbed +1.5% m-o-m/+6.3% y-o-y in Jan 2020 – but amid the regional rebound (+3.2% m-o-m) was further local weakness (-0.2% m-o-m).
- Deposit flows rebounded strongly, rising S$10.2bn in Jan 2020 following a soft Dec (+S$783m); this was aided by a solid +S$2.9bn in FCY balances.
- Reiterate Overweight. Our outlook factors in weaker regional growth prospects, but c.5% dividend visibility remains supported by strong capital.
Loan growth figures seemingly strong due to regional expansion
- System loans growth was relatively sturdy at +1.5% m-o-m/+6.3% y-o-y in Jan 2020, but all of this was driven by a rebound in regional business loans (+3.3% m-o-m/+9.5% y-o-y), mainly drawdowns from financial institutions (FIs) and general commerce sector, which masked the continued weakness in domestic credit growth (-0.2% m-o-m/+3.0% y-o-y).
- Contrastingly, the dip in local figures was led by FIs and general commerce while manufacturing loans contracted for the seventh consecutive month (-3.2% m-o-m/-4.9% y-o-y). Housing loan balances stayed flattish m-o-m.
- Going into FY20F, we expect system expansion to slow to c.4% (vs. FY19’s 5.3%) on the back of weaker growth sentiment across the region, compounded by likely supply chain disruptions from Covid-19.
Significant rebound in DBU deposits to the tune of S$10bn
- We note significant deposit inflows of S$10.2bn in Jan 2020 – the strongest m-o-m rise recorded since Sep 2015 (both periods likely due to US$ strength). The rise came as LCY balances staged a S$7.3bn rebound (Dec 2019: S$1.5bn net outflow) while FCY inflows were robust at +S2.9bn (FY19: +S$10bn).
- Although we expect liquidity to remain intact, underscored by Singapore’s status as a regional safe haven, some tapering of these deposit volumes is probable in the coming months as business cash flows tighten due to the virus outbreak, prompting companies to dip into reserves.
FD growth trumps again – CASA expansion weak
- The FD contraction over 4Q19 (-S$794m) was short-lived, as S$9bn of the inflows in Jan 2020 were ploughed back into time deposits (+3% m-o-m/+17% y-o-y). Consequently, CASA growth was lower at +0.3% m-o-m/+3.7% y-o-y (Dec 2019: +0.9% m-o-m/+3.3% y-o-y).
- While yet to be deployed, we stay optimistic on the wealth franchises of Singapore banks benefiting from increased customer activity as placements get repriced at lower S$ rates. We think CASA growth should pick up as 3MSIBOR slides further from the current 1.69% (-31bp since end-July 2019), guided by the 65bp dip seen in 3MLIBOR.
Reiterate Overweight; strong capitalisation underpins c.5% yields
- Reiterate Overweight on the sector. We expect the solid credit quality across Singapore banks to hold up against potential deterioration from the virus outbreak. In this respect, we prefer DBS (SGX:D05) for its smallest exposure to consumer consumption segments vs. peers.
- A key downside risk for the sector is a prolonged Covid-19 situation which could pressure earnings further.
Andrea CHOONG
CGS-CIMB Research
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LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-02-28
SGX Stock
Analyst Report
27.090
SAME
27.090
11.640
SAME
11.640
28.390
SAME
28.390
