Singapore Banks - CGS-CIMB Research 2021-03-31: Budding Shoots Of Growth

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 - Budding Shoots Of Growth

  • System loan growth of +3.7% in 2M21 is encouraging, especially vs the 1.1% contraction in FY20. On a m-o-m basis, Feb 21 growth slowed slightly.
  • Loans for general commerce and FIs led the overall expansion in Feb 21. Domestic mortgage growth held steady; credit card balances contracted m-o-m.
  • DBU deposits contracted 0.4% m-o-m in Feb 21 as FD balances continued rolling off. The DBU-CASA ratio rose to 67% — an all-time high.
  • Reiterate sector Overweight. We think that improving business sentiment and ample liquidity conditions set the stage for credit growth momentum.



Sustained loan growth momentum in Jan-Feb 21

  • System (domestic banking unit (DBU) and Asian currency unit (ACU)) loans expanded 1.2% m-o-m (+1.0% y-o-y) in Feb 21, bringing year-to-date growth to +3.7% — a striking contrast vs the 1.1% contraction in FY20.
  • Regional (ACU) loans led the expansion, increasing 2.0% m-o-m in Feb 21 (-1.2% y-o-y), mainly contributed by loans for general commerce and FIs.
  • Domestic (DBU) loan growth was sustained — rising for the fourth consecutive month in Feb 21 (+0.5% m-o-m/-0.9% y-o-y). The 0.5% m-o-m growth in the commercial segment was led by loans to the agriculture, mining and quarrying, and manufacturing industries.
  • We expect the loan growth momentum to head towards ~+5% in FY21F, on the back of an uneven economic recovery. A rebound in Singapore GDP growth to +5.3% in FY21F will be a key driving force of credit growth.


Some improvement in asset quality indicators

  • Feb 21 DBU consumer m-o-m loan growth was supported by steady mortgage growth (+0.3% m-o-m). Although outstanding credit card receivables (DBU) contracted 1.5% m-o-m in Feb 21 (year-to-date -2.9%), this was offset by a sustained (and rising) uptake in personal loans (+1.7% m-o-m).
  • Notably, credit card charge-off rates had normalised to 6.1% in 4Q20 (from a high of 9.1% in 3Q20) — a positive signal — but we are keeping watch on unsecured consumer credit growth trends as a leading indicator of possible asset quality deterioration to come, given its links to business sentiment on the ground.
  • Further, classified exposures as reported by the Monetary Authority of Singapore had improved slightly to 1.6% in 4Q20 (from 1.8% in 3Q20) — a broad reflection that asset quality remains contained across other customer segments, as well across Singapore banks.

DBU-CASA ratio rises to 67% — an all-time high

  • DBU deposits contracted 0.3% m-o-m in Feb 21 (+8.9% y-o-y) as FD balances continued rolling off on the back of depressed benchmark rates. The outflow mainly stemmed from residents outside Singapore and were denominated in S$.
  • The sustained maturities of FDs pushed the DBU-CASA ratio to 67% in Feb 21 — an all-time high since 1991.
  • While system LDR increased to 95.6% in Feb 21 (from its trough of 91.9% in Nov 20) given better credit demand, system liquidity remains ample, in our view, given the persistent funding inflows over the past months and relatively muted investment sentiments.





Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-03-31
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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