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Singapore Banks - CGS-CIMB Research 2020-06-30: Loan Growth On Lockdown

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 - Loan Growth On Lockdown

  • Pervasive 1.0% m-o-m contraction of system loans in May 20. Most notable were the shrinkages in general commerce, manufacturing, and FI balances.
  • DBU deposit growth lost its steam, contracting 1% m-o-m in May 20. Lower balances from SG gov (and stat. boards) and non-bank FIs were the culprits.
  • Reiterate sector Neutral. We expect some reprieve in loan contraction as economies reopen, albeit locally. Prefer DBS (SGX:D05) for its strength in wealth management.


Broad-based loan contraction as borders stayed shut

  • System loans shrank 1.0% m-o-m in May 20 (+3.4% y-o-y), on the back of both regional and domestic weakness, as most country borders stayed shut amid the Covid-19 pandemic.
  • On the macroeconomic front, manufacturing activity declined in May 20 (-7.4% y-o-y) as the biomed surge fizzled and the non-biomed manufacturing segment weakened further. A drop in pharma exports led to the 4.5% fall in non-oil domestic exports (NODX). In tandem, domestic loans contracted 0.6% m-o-m (+0.5% y-o-y) with general commerce (- 2.7% m-o-m) and financial institutions (FI, -2.2% m-o-m) dipping the most.
  • Credit card receivables showed further weakness (-4.8% m-o-m) as discretionary spending and corporate travel were deterred.
  • Regionally, the general commerce (-2.3% m-o-m) and manufacturing (-3.4% m-o-m) sectors led the dip. We expect the easing of lockdown restrictions beginning Jun 20, albeit locally contained, to give some lift to credit growth in months to come.


Lower government and non-bank deposits resulted in DBU decline

  • DBU deposits (mainly S$-denominated) contracted 1% m-o-m (-S$7.8bn) in May 20 — the last dip recorded was in Sep 18. This was attributable to outflows in both S$ (-0.9% m-o-m/-S$6.1bn) and FCY (-6.1% m-o-m/-S$1.6bn).
  • While the strong inflow of FCY deposits reversed in May 20, we note that FCY deposits in the DBU (S$25.3bn in May 20) account for less than 5% of total such deposits in the system and should be viewed in totality with FCY deposits in the ACU (data not published).
  • Most noticeably, the change in May 20 deposits was led by reduced balances from the Singapore government and statutory boards (-10.8% m-o-m/-S$5.5bn) as well as non-bank FIs (-10.8%/-S$7.6bn) — a stark contrast to previous months, where resident deposits, both in (+0.9% m-o-m) and outside (flattish m-o-m) Singapore, fuelled growth as geopolitical and market volatility loomed.


Continued descent of 3MSIBOR/SOR/LIBOR to transmit into NIMs

  • Regional benchmark rates continued its descent, with 3M SIBOR/SOR/LIBOR ticking down 8bp/6bp/8bp to an average 0.55%/0.17%/0.32% in Jun 20. Aggregating the figures, the 66bp/66bp/79bp decline in 3M SIBOR/SOR/LIBOR rates in 2Q20 will likely transmit into wider q-o-q NIM compression across the banks. That said, the lower rates have consequently led to a contraction in FDs (-7.3% m-o-m in May 20) — indicating possible funding cost savings.
  • Apart from rolling over into CASA, we believe that some of these funds could have been deployed into wealth management products, bolstering transaction volumes and fees for the banks.


Singapore Banks


DBS (SGX:D05)


OCBC (SGX:O39)


UOB (SGX:U11)






Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-06-30
SGX Stock Analyst Report HOLD MAINTAIN HOLD 18.800 SAME 18.800
HOLD MAINTAIN HOLD 19.040 SAME 19.040
HOLD MAINTAIN HOLD 8.370 SAME 8.370


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