Singapore Banking Monthly - Phillip Securities 2022-06-09: Interest Rates Continue To Rise In May

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Singapore Banking Monthly - Interest Rates Continue To Rise In May

May 2022 3M-SIBOR was up by 27bps m-o-m, the highest in 26 months.
Hong Kong’s domestic loans grew by 1.73% y-o-y but fell 0.69% m-o-m in April. Malaysia’s domestic loans growth increased 4.98% y-o-y and 0.41% m-o-m in April.
Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive with upside surprise due to excess capital ratios. Improving economic conditions and rising interest rates remain tailwinds for the banking sector. SGX (SGX:S68) is another beneficiary of higher interest rates.

Interest rates continued to increase in May. The 3M-SOR was up 41bps m-o-m to 1.47%, while the 3M-SIBOR was up 27bps m-o-m to 1.21%. The 3M-SOR is 93bps higher than its 1Q22 average of 0.54% and has improved by 120bps y-o-y. The 3M- SIBOR is 68bps higher than its 1Q22 average of 0.53% and has improved by 77bps y-o-y.

Malaysia’s central bank, Bank Negara Malaysia (BNM), announced the five digital banking license winners on 29 Apr. They are Grab Holdings; Sea Group; Malaysian mobile carrier Axiata’s fintech unit Boost Holdings; AEON Financial Service and KAF Investment Bank.
BNM has capped the digital banks’ assets at RM3bn (S$0.94bn) during the foundation phase, which could be mid-2026 to mid-2029. This means the total digital bank balance sheets will be less than 1% of the Malaysian banking system. The digital banks are more likely to focus on less capital-intensive areas, like payments and remittances, distribution of third-party investment and insurance products.

The Monetary Authority of Singapore (MAS) has imposed an additional capital requirement of about S$330mil on OCBC (SGX:O39) for its deficiencies in responding to a wave of spoofed SMS phishing scams in December 2021.
The additional penalty will impact OCBC’s CET1 ratio by 0.21%, which would mean OCBC’s CET1 ratio would now be 14.99%. Nonetheless, this would not affect the bank too much as it still has a healthy CET1 ratio, which at 14.99% is still higher than DBS (SGX:D05) (14.0%) and UOB (SGX:U11) (13.1%).

Hong Kong’s domestic loans grew by 1.73% y-o-y but fell 0.69% m-o-m in April. The m-o-m dip in loans growth for April was the lowest since Dec 2021 and the y-o-y loans growth declined by 51bps from March’s loans growth of 2.24%.
Malaysia’s domestic loans growth was 4.98% y-o-y and 0.41% m-o-m in April. The increase y-o-y in April was the highest since Mar 2019 and an increase of 42bps from March’s loans growth of 4.56%, while the increase m-o-m was a decline of 17bps from March’s loans growth of 0.58%.

SGX's preliminary SDAV for May dipped 6% y-o-y to $1,487mil, as community COVID-19 cases began to fall gradually. The VIX averaged 29.3 in May, up from 24.4 in the previous month.
The top five equity index futures turnover saw an increase of 20.5% y-o-y in May to 15.56mil contracts, mainly due to the higher trading volumes of its FTSE China A50 Index Futures and Nifty 50 Index Futures. Notably, the MSCI Singapore Index Futures increased 20.5% m-o-m to 1.28mil and the Nikkei 225 Index Futures increased 25.2% m-o-m to 1.15mil, while the FTSE China A50 Index Futures fell 5.7% m-o-m to 8.62mil.

We remain positive on banks. Bank dividend yields are attractive with upside surprise due to excess capital ratios. Improving economic conditions and rising interest rates remain tailwinds for the banking sector.
See
SGX (SGX:S68) is another beneficiary of higher interest rates.

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-06-05

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 35.700 SAME 35.700

BUY MAINTAIN BUY 14.220 SAME 14.220

ACCUMULATE MAINTAIN ACCUMULATE 35.700 SAME 35.700