Singapore Banking Monthly - Phillip Securities 2021-02-04: Biding Time

Singapore Banking Monthly - Phillip Securities Research | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11) SINGAPORE EXCHANGE LIMITED (SGX:S68)

Singapore Banking Monthly - Biding Time

  • January interest rates were similar to 4Q20 averages.
  • Loans shrank 1.98% y-o-y in December, but improved 0.3% m-o-m in their second consecutive month of growth.
  • SGX’s capital-market SDAV/DDAV grew 20%/4% y-o-y in January, sustaining their pace in 1H21.
  • Remain NEUTRAL. Our pick for sector exposure is SGX (SGX:S68) (ACCUMULATE, Target price: S$11.01) as we expect greater contributions from new businesses.


Interest rates unchanged in January

  • January’s 3M-SIBOR/3M-SOR of 0.40%/0.20% were 56bps lower than FY20 levels. Current 3M-SOR has edged up 1bp from January to 0.21% and rates are comparable to the past quarter.
  • Interest rates are expected to stay low for longer. In response, banks continue to adjust deposit rates to manage funding costs. OCBC (SGX:O39) is the latest to cut deposit rates, the fourth revision to its savings accounts in nine months.



SOR to be phased out by end-2021

  • Singapore forges ahead with its plan to transition to a single-interest-rate benchmark, the Singapore Overnight Rate Average (SORA). SORA is a backward-looking overnight rate that is supposed to offer more stability than SIBOR/SOR, which are forward-looking and computed using US$ LIBOR. The latter had been found to have been manipulated by European and US banks.
  • SORA will replace SOR by 2021, beginning with the full transition of SOR-linked cash-market products by May this year. SORA is then expected to replace SIBOR by 2024.
  • NIMs could come under pressure, as the backward-looking SORA will remove the pricing premium for uncertainty for the forward-looking SIBOR/SOR. However, we expect savings from asset repricing to offset NIM compression in FY21.


Lending gains in December

  • Loans fell 1.98% y-o-y in December, but this was an improvement from their decline of 2.32% a month ago. Business services and building and construction loans grew 5.7% and 5.3% y-o-y respectively. General commerce and credit-card loans fell 10.5% and 13.5% y-o-y respectively.
  • M-o-m, loans grew 0.3%, for the second consecutive month. Both business and consumer loans improved, up 0.18% and 0.51% respectively. Business loan growth was spearheaded by financial institutions’ loans, which grew 4.9% m-o-m. Credit cards led consumer loan growth, adding 1.7% m-o-m.
  • Housing loans grew 0.4% m-o-m and 0.3% y-o-y. They are expected to provide runway for system loan growth in the next 3-4 years, with housing project completions underway as the construction sector resumes operations.


Market activities normalised at heightened levels

  • SGX's preliminary SDAV for January of S$1,465mn indicates a y-o-y increase of 20% from S$960mn in January 2019. This matched its 19% y-o-y growth rate in 1H21. We believe SDAV will normalise at the heightened levels observed since the beginning of FY21.
  • DDAV was 4% higher y-o-y in 1H21 at 0.93mn. Volume for the top five equity index futures grew 4.4% y-o-y to underpin the growth in turnover.
  • Average fees per contract shrank from S$1.34 to S$1.27 in 1H21 as a result of a fee holiday implemented during the transition from MSCI Taiwan Index Futures to its FTSE replacement. However, SGX should gain when the fee holiday expires and if market participation is sustained.

Investment Actions






Tay Wee Kuang Phillip Securities Research | https://www.stocksbnb.com/ 2021-02-04
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 22.600 SAME 22.600
NEUTRAL MAINTAIN NEUTRAL 9.680 SAME 9.680
NEUTRAL MAINTAIN NEUTRAL 21.100 SAME 21.100
ACCUMULATE MAINTAIN ACCUMULATE 11.010 SAME 11.010



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