Singapore Banks - CGS-CIMB Research 2021-09-30: A Subdued August

DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)

Singapore Banks - A Subdued August

System loans contracted 0.2% m-o-m in Aug 21 as a 0.7% m-o-m shrinkage in regional loans more than offset the 0.2% m-o-m rise in domestic credit growth.
Deposits rose 0.7% m-o-m in Aug 21, driven almost equally by S$ and FCY. Liquidity conditions stayed ample with 84% LDR. FD growth outpaced CASA.
Reiterate NEUTRAL. SG banks’ immediate exposure to Evergrande appears limited at the current juncture. Expedited Fed rate hikes are a key catalyst.

Banking system loans recorded a mild 0.2% m-o-m contraction in Aug 21, primarily due to a 0.7% m-o-m contraction in non-resident (regional) loans, particularly from shrinkages in loans for real property and development of land (-2.9% m-o-m) as well as financial and insurance activities (-0.8% m-o-m).
Meanwhile, domestic housing loans rose 0.6% m-o-m as business loans to residents stayed flattish on the back of mixed segmental growth. Notably, the proportion of resident to non-resident banking system loans stood at 61:39 at end-Aug 21.
While NODX growth decelerated further to 2.7% y-o-y in Aug 21 (vs. +12.7% y-o-y in Jul 21) due to a poor performance in non-electronics, a global crunch in the supply chain of semiconductor chips should continue to sustain Singapore’s electronic exports into FY22F. On this front, Singapore banks are on track to meet their mid-to-high-single digit loan growth expectations for FY21F.
Our Economics Research team reiterates its Singapore GDP growth forecast of 6.6% for FY21F as the government navigates a progressive economic reopening against the backdrop of rising local COVID-19 cases.

System deposits rose 0.7% m-o-m (+S$10.9bn) in Aug 21, driven by an almost equal split between S$ and FCY deposits. Fixed deposits (FDs) led the deposit expansion, rising 1.3% m-o-m in Aug 21, while CASA grew 0.5% m-o-m in Aug 21.
The proportion of CASA to FDs held steady at 71:29. System loan-to-deposit ratio (LDR) eased slightly to 84.2% in Aug 21 (Jul 21: 85%) – a signal of still-ample liquidity conditions.
Note that previous (prior to Jul 21) statistical data disclosed by Monetary Authority of Singapore is not comparable with the current set of data due to a revamp in measurement methods.

Average quarterly benchmark rates saw some retracement in 3Q21, with 3MSIBOR/SOR/ LIBOR dipping 1bp/7bp/3bp to 0.43%/0.19%/0.13%. While the rate compression has moderated significantly compared to the peak declines of ~83-93bp in 2Q20, we do expect lingering pressure on banks’ NIMs as funding cost savings taper off amid the soft system credit growth.
While the recent FOMC meeting concluded with keeping the targeted Fed funds rate unchanged at a range of 0% to 0.25%, the Fed hinted at a possibility of tapering its bond purchases as soon as Nov 21 and an interest rate forecast (dot plot) revision towards seeing a first interest rate hike in 2022 – a key catalyst for the sector.
On Singapore banks’ exposures to Evergrande, DBS (SGX:D05) and UOB (SGX:U11) do not have exposure to the Chinese property giant. While OCBC (SGX:O39) reported S$70bn of loans to Greater China in 2Q21 with an NPL ratio of 0.5%, only S$5bn is attributable to Mainland China.
Downside risks are a major spillover impact on Greater China’s economic growth from the Evergrande crisis.

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2021-09-30

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