Singapore Banks - CGS-CIMB Research 2020-12-31: Easing Into The New Year

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 - Easing Into The New Year

  • Banking system loans contracted 0.7% m-o-m in Nov 20 as 1.6% m-o-m decline in regional loans more than offset the 0.2% m-o-m domestic loan growth.
  • While Nov 20’s DBU loan growth marks reversal of 8-month-long contraction, sustained deposit growth (+0.7% m-o-m) further compresses LDR to 91.9%.
  • Reiterate OVERWEIGHT on Singapore banking sector as we expect Singapore’s Phase 3 re-opening and start of COVID-19 vaccinations to spur business activity and credit growth in FY21.



Domestic consumer loans growth picked up in Nov 20

  • Banking system loans (DBU+ACU) contracted 0.7% m-o-m (-2% y-o-y) in Nov 20 as the 1.6% m-o-m decline in regional (ACU) lending more than offset the 0.2% m-o-m growth in domestic (DBU) loan balances.
  • Notably, the growth in domestic loans this month marks a reversal of an 8-month decline in these balances. The rise was led by consumer lending (+0.4% m-o-m), as housing loans (+0.4% m-o-m) and credit card spending (+3.0% m-o-m) picked up, while business loans were flattish.
  • The shrinkage in regional loans was broad-based across both business and consumer sectors.


We expect system loan growth to recover to ~4% in FY21F

  • On balance, system loans declined 1.4% in 11M20 – comparable to our muted FY20F GDP growth forecast of -5.7%. That said, growth in Singapore’s industrial production index (IPI) is encouraging, having rebounded to 17.9% y-o-y in Nov 20 (-0.8% y-o-y in Oct 20) as driven by favourable base effects and a strong sequential lift of 7.2% m-o-m sa (- 19.0% m-o-m sa in Oct 20).
  • We expect system loan growth to recover to c.4% in FY21F, in tandem with stronger GDP growth (forecasted) of +5.3%.


Moderation in deposit growth as heightened volatility wears off

  • DBU deposit growth halved m-o-m to +0.7% (+S$5.1bn) in Nov 20 as both S$ (+0.5% m-o-m, +S$3.8bn) and FCY (+4.4% m-o-m, +1.3bn) inflows moderated as heightened volatility from the US presidential elections dissipated. Almost all of the deposit growth (+S$4.8bn) stemmed from residents in Singapore; residents outside Singapore recorded a net withdrawal (-S$651m).
  • Unsurprisingly, continued roll-offs of fixed deposits (FDs, - 1.4% m-o-m) amid depressed interest rates saw CASA balances (+1.8% m-o-m) forming the bulk of the DBU deposit growth. To sum up, CASA balances expanded +25.2% in 11M20, at the expense of FDs which declined 10.5%.
  • The Monetary Authority of Singapore reports that system loan-to-deposit ratio (LDR) reduced further to 91.9% (from 100% in Mar 20).


Smallest quarterly decline in benchmark rates in over a year

  • Average quarterly benchmark rates reduced by the smallest quantum in over a year, with 3MSIBOR/SOR/LIBOR declining 3bp/1bp/3bp to 0.41%/0.18%/0.22% in 4Q20. The stark moderation in compression (vs. the peak declines of ~83-93bp in 2Q20) is a reinforced indication of stabilisation in Singapore banks’ NIMs going into FY21F.
  • We remain cognisant that lower LDRs (despite stabilising interest rates) could compound pressures from (relatively) weaker NIMs on banks’ earnings, but a pick-up in credit growth from the easing of social distancing measures as Singapore rolls out the COVID-19 vaccines in 2021.





Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-12-31
SGX Stock Analyst Report ADD MAINTAIN ADD 28.350 SAME 28.350
ADD MAINTAIN ADD 12.520 SAME 12.520
ADD MAINTAIN ADD 27.720 SAME 27.720



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