Singapore Banking Monthly - Phillip Securities 2020-11-03: Lukewarm 3Q Expected

Singapore Banking Sector - Phillip Securities Research | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)

Singapore Banking Monthly - Lukewarm 3Q Expected

  • October interest rates remained at their lowest since 2014.
  • Loans shrank for the third consecutive month (-1.03% y-o-y), as business loans dipped 0.2% and consumer loans, 2.4% y-o-y.
  • SDAV grew at its slowest 6% y-o-y since 2020. Top equity derivatives value slipped 9% y-o-y.
  • Maintain NEUTRAL. Lukewarm 3Q20 expected, with m-o-m improvements from better NIM management following asset repricing and end of circuit breaker (CB).



Persistent headwind for NIMs

  • Interest rates stayed low in 3Q20 (3M-SIBOR: 0.43%, 3M-SOR: 0.19%), with 3M-SIBOR and 3M-SOR at 0.41% and 0.18% respectively in October. Banks are likely to report flat NIMs in 3Q that will likely persist with low interest rates.


Weak lending environment persisted in September

  • Loans contracted 1.03% y-o-y in September, as outstanding loans shrank for the seventh consecutive month. The main culprit was business loans, which dipped 0.2% y-o-y for the second consecutive month while consumer loans shrank 2.4% y-o-y.
  • M-o-m though, consumer loans have started to recover. They grew 0.3% in October, their third consecutive growth. All segments added loans, which helped stave off a bigger loan-book contraction.
  • As Singapore resumes economic activities, a turnaround in business loans could revert loan growth to healthier levels observed in 2019.


Local capital markets weakened in October

  • SGX (SGX:S68)'s Preliminary SDAV of S$1,043mn indicates a y-o-y increase of 6% from S$980mn a year ago in October, the slowest growth since the start of 2020.
  • Similar weakness was observed for derivatives volumes, which retreated 8.7% y-o-y in October for the top five equity index futures contracts. This echoed the overall sluggish market as we enter the final quarter of 2020.
  • That said, the recent spike in the VIX arising from uncertainty from the US election uncertainties and a global resurgence of COVID-19 cases may benefit derivatives as a risk-management tool.
  • October volume for the FTSE Taiwan Index Futures overtook its MSCI counterpart, ahead of the MSCI Taiwan Index Futures’ expiry in February 2021. SGX continued to roll out an extensive suite of equity derivatives products to replace its expiring MSCI contracts. These included replacement contracts and contracts with expanded exposure to other market segments (See Annex A in PDF report attached below).

Investment Action






Tay Wee Kuang Phillip Securities Research | https://www.stocksbnb.com/ 2020-11-03
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 21.000 SAME 21.000
ACCUMULATE MAINTAIN ACCUMULATE 8.920 SAME 8.920
ACCUMULATE MAINTAIN ACCUMULATE 20.400 SAME 20.400



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