DBS GROUP HOLDINGS LTD (SGX:D05)
OVERSEA-CHINESE BANKING CORP (SGX:O39)
UNITED OVERSEAS BANK LTD (SGX:U11)
Singapore Banks - DBU Funding Supported By FCY Deposits
- DBU deposits rose a modest 0.4% m-o-m (+S$3.2bn) in Aug 20, but what stood out was the +S$2.8bn (+11.5% m-o-m) resurgence in FCY deposits.
- System loans slid for the fifth straight month – contracting 0.7% m-o-m in Aug 20. Manufacturing, loans for general commerce and to FIs were the worst-hit.
- Higher credit card charge-off rates and pick-up in personal loan drawdowns could make a case for an extension of loan moratoriums in Singapore.
- Reiterate NEUTRAL. We expect funding costs to trend downwards as liquidity remains flush – alleviating some NIM pressure over 3Q-4Q20.
System loans shrank further, but at a slower pace
- The contraction of system (DBU + ACU) loans tapered off slightly, shrinking 0.7% m-o-m in Aug 20 (vs. 1.0-1.3% m-o-m decline over Apr-Jul 20). This marks the fifth consecutive month of decline since regional borders were shut in Mar 20 to contain COVID-19. The declines in Aug 20 reflect the worst-hit sectors since Mar 20, which came mainly from the manufacturing (-13% over Apr-Aug 20) and general commerce (-15%) sectors, as well as reduced financing to FIs (-5%).
- The building and construction sector remained comparably unscathed (+4% over Apr-Aug 20). Taking into account a weaker 3Q20 Singapore GDP projection on the back of stagnating manufacturing PMI gauges, our FY20F GDP forecast is revised from -4.9% to -5.7%.
- That said, we keep our FY20F loan growth estimate at c.4% as we project a pick-up in credit demand into FY21F, in line with our forecasted GDP outlook of +5.3% in FY21F.
Uptick in credit card charge-off rate and personal loan drawdowns
- On the domestic front, unsecured consumer financing offset the reduction in housing loans (-0.1% m-o-m). Credit card transaction volumes held their momentum (since normalising in Jun 20 when Singapore circuit breaker restrictions were eased) at +1.7% m-o-m in Aug 20, while personal loan drawdowns edged upwards by +1.5% m-o-m.
- Although positive in its contribution to loan growth rates, we opine that the higher 7.3% credit card charge-off rate in 2Q20 (vs. 5.5% quarterly average over FY15-19) and simultaneous rise in personal loans may be warranted as a leading indicator of softer business sentiment on the ground.
- That said, NPL ratios across DBS, OCBC and UOB have so far stayed steady at c.1.6% in 2Q20 while impairment provisions still remain within guidance (c.80-130bp over FY20-21F). However, this could make the case for a possible extension of moratoriums in Singapore, which is currently slated to expire at end-Dec 20.
A resurgence of DBU FCY deposits in Aug 20
- Having expanded strongly over the year, DBU deposit growth was a smaller +0.4% m-o-m (+S$3.2bn) in Aug 20. These were primarily contributed by S$2.8bn in FCY deposits (+11.5% m-o-m, possibly due to S$ strength) – a stark reversal of the S$2.5bn net outflow over May-Jul 20. While we note that FCY deposits in the DBU paint a partial picture of system funding (ACU balances not published), the sustained DBU funding inflows point to flush liquidity levels across the banks, especially when compounded by soft credit demand.
- We think that NIMs will still be a beneficiary as funding cost reductions catch up with falling yields, and expect milder q-o-q compression come 2H20F as benchmark rates bottom out.
- See
Andrea CHOONG
CGS-CIMB Research
|
LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-09-30
SGX Stock
Analyst Report
20.460
SAME
20.460
9.380
SAME
9.380
20.580
SAME
20.580
