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Singapore Banking Monthly - Phillip Securities 2022-07-04: Interest Rates Continue To Rise In June

Singapore Banking Monthly - Phillip Securities Research | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)

Singapore Banking Monthly - Interest Rates Continue To Rise In June

  • June 2022 3M-SIBOR was up by 28bps m-o-m, the highest since Feb 2020.
  • SGX’s 1H22 top five equity index futures turnover was up 13.9% y-o-y. We estimate SGX securities and derivatives volumes from 1H22 was down 3% and up 14% y-o-y respectively.
  • Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive with upside surprise due to excess capital ratios. Stable economic conditions and rising interest rates remain tailwinds for the banking sector.
  • SGX (SGX:S68) is another beneficiary of higher interest rates.
  • Pressure points for the banks will be higher staff cost and nudge in general provisioning due to weaker economic assumptions.



3M-SOR and 3M-SIBOR up in June

  • Interest rates continued to increase in June. The 3M-SOR was up 33bps m-o-m to 1.80%, while the 3M-SIBOR was up 28bps m-o-m to 1.49%. It is the highest interest rates have been since Feb 2020.
  • The 3M-SOR is 36bps higher than its 2Q22 average of 1.44% and has improved by 156bps y-o-y. The 3M-SIBOR is 27bps higher than its 2Q22 average of 1.22% and has improved by 106bps y-o-y.


Loans growth on par with nominal GDP growth

  • Loans growth over the past two years was a CAGR of 7.5% is on par with the two-year CAGR of nominal GDP at 7.5%. This is unlike the 2008 global financial crisis (GFC) provisioning cycle, when loans growth was outpacing nominal GDP growth.
  • The two-year CAGR of loans at 25.3% compared to nominal GDP at 20.9%. We believe it is indicative of excessive lending by the banks. In the 2016 (oil and gas) provisioning cycle, loans growth also exceeded nominal GDP growth, with the two-year CAGR of loans at 1.99% compared to nominal GDP at -1.15%.


Hong Kong loans growth maintained while Malaysia's loans growth stable in May

  • Hong Kong’s domestic loans growth was 1.78% y-o-y and 0.46% m-o-m in May. The m-o-m uptick in loans growth for May was the highest since Jan 2022 and the y-o-y loans growth was up 5bps from April’s loans growth of 1.73%.
  • Malaysia’s domestic loans growth was 4.99% y-o-y and 0.28% m-o-m in May. The increase y-o-y in May was the highest since Mar 2019 and an increase of 1bps from April’s loans growth of 4.98%, while the increase m-o-m was a decline of 13bps from April’s loans growth of 0.41%.


Volatility fell as community cases begin to fall

  • SGX's preliminary SDAV for June dipped 5% y-o-y to $1,141mil, as community COVID-19 cases began to fall gradually. The VIX averaged 28.3 in June, down from 29.3 in the previous month.
  • The 5 equity index futures turnover saw an increase of 25.0% y-o-y in June to 16.66mil contracts, mainly due to the higher trading volumes of its Nikkei 225 Index Futures and Nifty 50 Index Futures. Notably, the FTSE China A50 Index Futures increased 9.4% m-o-m to 9.43mil and the Nikkei 225 Index Futures increased 52.4% m-o-m to 1.75mil, while the Nifty 50 Index Futures fell 7.6% m-o-m to 2.67mil.
  • For 1H22, the top 5 equity index futures turnover saw an increase of 13.9% y-o-y to a total of 93.8mil contracts. This was mainly due to an increase in trading volumes of its Nifty 50 Index Futures and FTSE China A50 Index Futures.

Investment Action

  • Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive with upside surprise due to excess capital ratios. Stable economic conditions and rising interest rates remain tailwinds for the banking sector.
  • SGX (SGX:S68) is another beneficiary of higher interest rates.
  • See data charts in report attached below.





Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-07-04
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 41.600 SAME 41.600
BUY MAINTAIN BUY 14.220 SAME 14.220
ACCUMULATE MAINTAIN ACCUMULATE 35.700 SAME 35.700



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