Singapore Banks - CGS-CIMB Research 2021-05-31: Speedbump In 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 - Speedbump In Growth

  • Banking system loans tapered 0.6% m-o-m (-1.1% y-o-y) in Apr 21, coming off a gradual deceleration since the 2.4% m-o-m growth spurt in Jan 21.
  • While DBU deposits were flattish m-o-m (+4.7% y-o-y) in Apr 21, CASA balances contracted in favour of FDs for the first time since Sep 19.
  • Industry LDR stayed relatively low at 94.3% in Apr 21. Meanwhile, credit card charge-offs declined to 5% -- a positive indicator of asset quality, in our view.
  • Reiterate Overweight. Faster-than-expected economic reopenings could spur stronger credit growth. SG economy remains on track to reopen in mid-Jun.



System loans tapered in Apr 21 due to weak regional loan demand

  • Banking system loans (Domestic Banking Unit [DBU] + Asian Currency Unit [ACU]) tapered 0.6% m-o-m in Apr 21 (-1.1% y-o-y), coming off a gradual m-o-m deceleration since the 2.4% m-o-m growth spurt seen in Jan 21 (-0.3% y-o-y). The 1.4% m-o-m contraction in ACU loans (mainly regional loans) – primarily business loans – was the reason for the overall weakness in Apr 21 as lending to key sectors of financial institutions (-2.2% m-o-m) and manufacturing (-3.6% m-o-m) dipped. DBU loan growth (mainly domestic loans) was flattish (+0.1% m-o-m).
  • Singapore banks have raised loan growth expectations to mid-to-high single-digit in FY21F amid a rebound in Singapore’s 2021F GDP growth to ~5.3% (CGS-CIMB’s Economic Research estimate). We are cognisant that these forecasts are dependent on progressive reopenings of the domestic and regional economies (and in turn, business transaction volumes) in line with getting COVID-19 infections under control.


Lower credit-card charge-off rates a positive sign of asset quality

  • In the DBU, business loans were little changed as a rise in lending for general commerce (+2% m-o-m), and building and construction (+0.3 m-o-m) sectors largely offset shrinkages in the transport, storage and communication (-4.1% m-o-m) and manufacturing (-3.4% m-o-m) sectors. Domestic mortgage growth held steady at 0.4% m-o-m in Apr 21.
  • On unsecured consumer lending, credit card receivables contracted for a fourth consecutive month (-0.2% m-o-m) while growth of personal loans eased to 0.4% m-o-m. Notwithstanding the weaker uptake of unsecured consumer credit facilities to overall growth, we think the slowdown in demand is a positive indicator of asset quality on the ground.
  • Notably, credit card charge-offs improved to 5% in 1Q21, from a peak of 9.1% in 3Q20 (since data was disclosed in 4Q14). NPL ratios amongst Singapore banks held steady at ~1.6% in 1Q21.

DBU CASA deposits contracted for the first time since Sep 19

  • While DBU deposits were flattish m-o-m (+4.7% y-o-y) in Apr 21, the key surprise came from CASA balances which contracted 0.7% m-o-m (+18.4% y-o-y) – the first time since Sep 19 – as fixed deposits expanded 1% m-o-m (-15.9% y-o-y) following seven months of shrinkage. On this end, benchmark rates stayed fairly stable despite the rise in 10-year US treasury bond yields, with average quarterly 3M SIBOR/SOR/LIBOR shifting +2bp/+2bp/-3bp in Apr-May 21 vs 1Q21.
  • On balance, the industry LDR ratio remained relatively low at 94.3% in Apr 21 given the ample liquidity conditions and moderate credit growth.
  • UOB (SGX:U11) is our preferred pick for the sector for its relatively cheaper valuation and it being a key beneficiary of economic reopenings. A quicker-than-expected pace of COVID-19 vaccinations is a potential re-rating catalyst. The extension of the dividend cap on banks by the Monetary Authority of Singapore is a downside risk for the sector.
  • See





Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-31
SGX Stock Analyst Report ADD MAINTAIN ADD 32.640 SAME 32.640
ADD MAINTAIN ADD 13.750 SAME 13.750
ADD MAINTAIN ADD 28.840 SAME 28.840



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