Singapore Banks - CGS-CIMB Research 2020-08-31: Broad-based Business Contraction Continues

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

Singapore Banks - Broad-based Business Contraction Continues

  • System loans contracted for a 4th straight month in Jul 20. Regional loans were the culprit (-1.8% m-o-m) as domestic loan decline tapered (-0.2% m-o-m).
  • General commerce, manufacturing and FI sectors declined the most since Mar 20 (height of lockdowns), but the B&C sector remains a bright spot.
  • DBU deposits increased +0.8% m-o-m in Jul 20, mainly from SGD balances. FCY deposit growth lost its momentum – rising mildly by +0.7% m-o-m.
  • Reiterate Neutral. We stay optimistic on a pick-up in credit growth as GDP recovers, but the end of moratoriums could deepen asset quality pressures.



Jul 20 business loans remained muted; unsecured retail loans rose

  • System loans (DBU + ACU) contracted for a 4th consecutive month in Jul 20 in the aftermath of reduced business activity due to COVID-19. The 1.0% m-o-m contraction in Jul was mainly attributable to regional operations (ACU, -1.8% m-o-m/+2.1% y-o-y) as the decline in domestic loans (DBU) tapered (-0.2% m-o-m/-0.3% y-o-y).
  • Overall, manufacturing loans suffered the largest decline (-8.9% m-o-m), followed by the transport, storage and communication (-3.8%) and general commerce (-2.7%) sectors; building and construction (B&C) loans continued to expand steadily.
  • Retail loan growth was a slight offset as credit card receivables (+2.2% m-o-m) and loans to professional and private individuals (+1.5% m-o-m) picked up.
  • Notably, the Monetary Authority of Singapore reported that NPLs in the banking system rose to 2.65% in 2Q20, from 2.01% in 4Q19 – a reflection of broad economic weakness at the height of global border closures. Note that the NPL ratios of DBSOCBC and UOB stood at c.1.6% in 2Q20.
  • We remain optimistic on a gradual pick up in credit growth from here onwards, in line with our view of Singapore GDP rebounding to +5.3% in FY21F, from our forecasted -4.9% in FY20F.


SGD-denominated CASA deposits underpins funding growth

  • DBU deposit growth was modest at +0.8% m-o-m/+12.3% y-o-y in Jul 20. SGD-denominated balances fueled the increase (+S$5.7bn or +0.8% m-o-m) while FCY deposits rose a relatively small +S$160m (+0.7% m-o-m).
  • Recall that FCY deposits in the DBU jumped a significant S$19.2bn over Jul 19-Apr 20, but we have since observed net outflows over May-Jun 20 (S$2.7bn) as these funds are likely deployed into higher-yielding assets.
  • Unsurprisingly, CASA deposits were the main conduit of fund inflows in Jul 20 given the low interest rate environment – rising 1.6% m-o-m as fixed deposits contracted 0.6% m-o-m. In 7M20, CASA gained 20.0%, unwinding the +17.5% FD growth recorded over FY19 during the period of Fed rate hikes.


NIM pressure alleviating as benchmark rates bottom out

  • The decline in benchmark rates over 2M3Q20 were not nearly as severe as they were in 2Q20 as rates are close to bottoming out. Average 3M SIBOR/SOR/LIBOR changed - 12bp/+3bp/-6bp over Jul-Aug 20 to 0.42%/0.20%/0.25% - a much smaller quantum than - 83bp/-86bp/-93bp recorded in 2Q20 which led to the 16-24bp q-o-q NIM decline across the local banks. These trends solidify our belief that NIM compression will likely ease in 2H20, alleviating some of the pressure on the bottom line from pre-emptive impairments.






Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-31
SGX Stock Analyst Report HOLD MAINTAIN HOLD 20.460 SAME 20.460
HOLD MAINTAIN HOLD 9.38 UP 9.190
HOLD MAINTAIN HOLD 20.580 SAME 20.580



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