Singapore Banks - DBS Research 2020-02-28: Expect Slower Loan Growth In 1H20

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

Singapore Banks - Expect Slower Loan Growth In 1H20

Jan’20 saw healthy loan growth after a slow 2H19; expect slower loan growth in 1H20 due to COVID-19.
Mortgage book held firm in Jan’20.
Loan-to-deposit ratio eases as deposit growth outpaces loan growth.
Remain Neutral on sector; dividend yields and strong capital base should provide some support.

Singapore system loans grew 4.2% y-o-y in 2019. In Jan’20, loans grew 1.5% m-o-m/6.3% y-o-y after a slow 2H19, led by growth in ACU loans. We believe that increased uncertainty regionally and ex-Asia due to the current COVID-19 situation will result in slower loan growth in 1H20 going forward as investment decisions are pushed back.
DBS (SGX:D05) has guided for a mid-single-digit loan growth, while OCBC (SGX:O39) and UOB (SGX:U11) have guided for low and low-to-mid single-digit loan growth for FY20F respectively.
We see overall loan growth for Singapore banks at c.3-4% for FY20F, remaining cognisant of downside risks should COVID-19 continue to affect more countries.

After 12 consecutive months of decline, Singapore banks’ mortgage book held firm in Jan’20 (+0.04%m-o-m/ -1.7% y-o-y), as the rate of decline since Sep’19 seemed to have slowed from the peak of 0.3% m-o-m decline seen in Apr’19.
We expect to see some of the new bookings seen through 2H19 (relating to popular launches) being translated into mortgage drawdowns subsequently.
We also continue to keep watch for the secondary refinancing market as y-o-y declines for secondary sales in 2H19 has moderated from declines of c. 45- 50% y-o-y since the cooling measures were implemented. We believe the current COVID-19 situation may weigh on an impending property market recovery in the meantime.

Deposit growth of 1.5% m-o-m/9.0% y-o-y continued to outpace loan growth as demand for fixed deposits remained high even as interest rates have come off the peak. LDR (DBU) continued to ease to below 100%, a level last seen in Jun’13. As of Jan’20, LDR stood at 99.6%, while S$ non-bank LDR was at 83.0%.

We remain Neutral on Singapore banks and are cautious of the impact of COVID-19 on the domestic economy, as well as supply chains in the region.
Barring any sharp deterioration in asset quality, we are of the view that share prices are likely to trade sideways; dividend yields and strong capital base should provide some support.

Rui Wen LIM DBS Group Research | https://www.dbsvickers.com/ 2020-02-28

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

HOLD MAINTAIN HOLD 11.500 SAME 11.500

BUY MAINTAIN BUY 27.200 SAME 27.200