Singapore Banking Monthly - Phillip Securities 2022-09-07: Volume & Margins Still Rising

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Singapore Banking Monthly - Volume & Margins Still Rising

August 3M-SIBOR was up by 25bps m-o-m to 2.72%, the highest in over a decade. Loans growth in Singapore rose 6% y-o-y in July.
Singapore domestic loans grew 6.3% y-o-y in July, tracking our estimates, while Hong Kong’s domestic loans declined 0.08% y-o-y and 0.42% m-o-m in July.
Maintain OVERWEIGHT.
- We remain positive on banks. Bank dividend yields are attractive at 5% with upside surprise due to excess capital ratios. Stable economic conditions and rising interest rates remain tailwinds for the banking sector.
- Singapore Exchange (SGX) is another beneficiary of higher interest rates.

Interest rates continued to increase in August.
- The 3M-SOR was up 25bps m-o-m to 2.72%, while the 3M-SIBOR was up 51bps m-o-m to 2.53%. It is the highest interest rates have been in over a decade. The 3M-SOR is 128bps higher than its 2Q22 average of 1.44% and has improved by 254bps y-o-y.
- The 3M-SIBOR is 131bps higher than its 2Q22 average of 1.22% and has improved by 210bps y-o-y.

Overall loans to Singapore residents – which captures lending in all currencies to residents in Singapore – rose by 6.3% y-o-y in July to S$838bn, tracking our estimate of mid-single digit growth for 2022 as economies in ASEAN begin to recover from the pandemic lockdowns and borders start to reopen.
Business loans grew by 7.3% y-o-y in July, even though business loans dipped by 0.6% for the month. Loans to the building and construction segment, the single largest business segment grew 6.3% y-o-y to S$173.8bn, while loans to the manufacturing segment grew 10.3% y-o-y in July to S$27.6bn.
Consumer loans were up 4.6% y-o-y in July to S$315.3bn, aided by strong loan demand in the housing segment. Housing loans, which make up ~70% of consumer lending, grew 5.7% y-o-y in July to S$220.5bn for the month.
Total deposits and balances – which capture deposits in all currencies to non-bank customers – grew by 10.8% y-o-y in July to S$1,695bn. Current Account and Savings Account (CASA) proportion remained stable at 22.6% of total deposits or S$383.5bn.

Hong Kong’s domestic loans growth declined 0.08% y-o-y and 0.42% m-o-m in July. The y-o-y decline in loans growth for July was an improvement from the decline of 2.34% in June, while the m-o-m loans growth decline of 0.42% was 25bps higher than June’s loans growth decline of 0.17%.

SGX's preliminary SDAV for August dipped 12% y-o-y to $1,083mil, as market sentiment remained subdued due to macroeconomic factors. The VIX averaged 22.2 in August, down from 25.0 in the previous month.
The top 5 equity index futures turnover saw a dip of 4.2% y-o-y in August to 13.71mil contracts, mainly due to the lower trading volumes of its FTSE China A50 Index Futures and FTSE Taiwan Index Futures. Notably, the MSCI Singapore Index Futures grew 6.9% m-o-m to 1.21mil and the FTSE Taiwan Index Futures dipped 15.3% m-o-m to 1.21mil.

We remain positive on banks. Bank dividend yields are attractive with upside surprises due to excess capital ratios. Stable economic conditions and rising interest rates remain tailwinds for the banking sector. Pressure points for the banks will be higher staff costs and a nudge in general provisioning due to weaker economic assumptions.
Singapore Exchange (SGX) is another beneficiary of higher interest rates.

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-09-07

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