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

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 - 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.



System loans stayed flattish in Aug 21

  • 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 liquidity still ample with 84% LDR ratio

  • 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.

Benchmark rates slipped lower in 3Q21 – could pressure NIMs

  • 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
SGX Stock Analyst Report ADD MAINTAIN ADD 32.700 SAME 32.700
ADD MAINTAIN ADD 13.750 SAME 13.750
ADD MAINTAIN ADD 29.000 SAME 29.000



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......