Singapore Banks - CGS-CIMB Research 2020-03-31: Some Resilience In Regional Growth

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

Singapore Banks - Some Resilience In Regional Growth

  • System loan growth was resilient at +2% m-o-m/+8% y-o-y as strong momentum in regional growth (+4% m-o-m) offset tepid local showing (+0.2% m-o-m).
  • FCY deposit inflows normalised to S$352m in Feb 2020 — the lowest since the surge began in Jun 19. FD growth declined to +0.2% m-o-m as rates dip.
  • We believe that MAS’s moratorium on mortgages, secured SME loans and unsecured retail facilities will reduce cash flow pressures in system.
  • Reiterate sector Neutral.
  • 6-7% yields attractive at current valuations, but falling rates/credit quality concerns from outbreak could cap share prices.



Regional momentum made up for the weakness in domestic growth

  • System — domestic banking unit (DBU) and Asian currency unit (ACU) — loan growth was fairly resilient at +2.0% m-o-m/+8.2% y-o-y in Feb 2020, on the back of strong regional growth momentum (+3.7% m-o-m/+13.7% y-o-y), which compensated for the tepid domestic expansion (+0.2% m-o-m/+3.1% y-o-y).
  • Broadly, most of the growth was attributable to the manufacturing sector (as refinancing needs come due), the need for working capital for general commerce in the domestic space, and regional financial institutions (for liquidity management), we believe.
  • System consumer lending picked up slightly (+0.9% m-o-m/+2.9% y-o-y), due to an uptick in regional loans to professional and private individuals (unsecured retail loans), while mortgages in Singapore contracted 0.1% m-o-m. We expect Singapore banks’ loan growth to taper to c.3% in FY20F (vs. 3-4% in FY19).


Normalised FCY deposits, but strength seen in non-resident flows

  • The unrelenting surge in foreign currency (FCY) deposits, coinciding with the geopolitical uncertainty in HK since Jun 19, has finally ceased, normalising to S$352m in Feb 2020 (Jan 2020: S$2.9bn, 2H19: S$11bn). In Feb 2020, DBU deposits rose by 0.9% m-o-m/8.9% y-o-y. Notwithstanding higher balances from domestic residents, we also noted continued strength in deposits from residents outside Singapore (+5.5% m-o-m) — the most since Aug 2011 — indicating some repatriation of funds, given Singapore’s regional safe haven status. Fixed deposit growth declined to +0.2% m-o-m/+13.9% y-o-y (Jan 2020: +3.1% m-o-m/+13.9% y-o-y) as promotional rates dipped to c.1%, following the cumulative 150bp Fed rate cut in Mar 2020.


MAS’ double move on the S$NEER should slow SIBOR/SOR drop

  • The central bank’s move to loosen monetary policy by reducing the rate of appreciation of the S$NEER to 0% per annum, as well as to re-centre the policy band downwards, should provide some degree of flexibility for the S$ to buffer the impact of recessionary threats, alongside the liquidity injected via the S$48bn Resilience Budget. We believe that the improved competitiveness of the currency should provide some support to SIBOR/SOR rates, stretching out the fall towards c.0.2-0.3%, which is the level where these rates settled at during the low-rate environment in FY09-15.


Reiterate sector Neutral; OCBC as top pick given trough valuations

  • While we think that Singapore banks are adequately capitalised against potential asset quality deterioration from the virus outbreak, a key downside risk of prolonged lockdowns.


Stress-testing bank exposures for a prolonged lockdown

  • In addition to the Covid-19 relief measures rolled out by Singapore banks in Feb 20, the Monetary Authority of Singapore (MAS) has announced additional support measures for individuals and SMEs to complement the S$48bn supplementary budget.
  • Broadly, the MAS will allow the deferment of principal or both principal and interest payments on residential property loans and premium payments on health and life insurance policies, the conversion of unsecured retail credit facilities into term loans at reduced interest rates, the conversion of general insurance plans into instalments, as well as the deferral of principal payments on secured SME term loans. The banks have committed to these support measures, and participation will be on an opt-in basis. We believe that these will moderate asset quality strains in the system, but remain cognisant of the business impact on corporate customers.
  • We currently factor in credit costs of c.60bp across Singapore banks, but are cognisant of escalating asset quality pressures, given the extent of border closures, lockdowns, and social distancing measures. At present, we understand that the take-up of moratoriums rolled out across banks to support disrupted SME cashflow has not been as quick as expected, indicating some resilience in business cashflow.
  • That said, a prolonged Covid-19 situation could necessitate higher provisions in the medium term. Inputting credit costs of c.70-80bp across the banks in the event of a prolonged outbreak could see FY20F EPS reduced by c.27-42% y-o-y (vs. our current c.22-31% estimates).
  • See





Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-03-31
SGX Stock Analyst Report ADD MAINTAIN ADD 9.040 SAME 9.040
HOLD MAINTAIN HOLD 18.800 SAME 18.800
HOLD MAINTAIN HOLD 19.400 SAME 19.400



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