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

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.

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.

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 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

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