Singapore Banking Monthly - Phillip Securities 2022-10-12: Interest Rates & Loans Still Expanding

DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) SINGAPORE EXCHANGE LIMITED (SGX:S68)

Singapore Banking Monthly - Interest Rates & Loans Still Expanding

September 3-month SORA and 3-month SIBOR was up by 42bps and 32bps m-o-m to 2.31% and 2.85% respectively, the highest in more than a decade. 3Q22 3-month SORA average in 2.31%, up 218bps y-o-y.
Singapore domestic loans grew 6.7% y-o-y in August, tracking our estimates, while Hong Kong’s domestic loans declined 0.97% y-o-y in August.
Maintain OVERWEIGHT. We remain positive on banks. Singapore banks 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.
SGX (SGX:S68) is another beneficiary of higher interest rates.

Interest rates continued to increase in September. The 3-month SORA (Singapore Overnight Rate Average) was up 42bps m-o-m to 2.31%, while the 3-month SIBOR (Singapore Interbank Offered Rates) was up 32bps m-o-m to 2.85%. It is the highest interest rates have been in more than a decade.
The 3Q22 3-month SORA is up 30bps q-o-q to 2.31% and has spiked by a massive 218bps y-o-y.

Overall loans to Singapore residents – which captures lending in all currencies to residents in Singapore – rose by 6.7% y-o-y in August to S$843bn, 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 8.2% y-o-y in August, as business loans grew by 0.8% for the month. Loans to the building and construction segment, the single largest business segment grew 5.1% y-o-y to S$172.8bn, while loans to the manufacturing segment grew 12.5% y-o-y in August to S$27.5bn.
Consumer loans were up 4.3% y-o-y in August to S$315.8bn, aided by strong loan demand in the housing segment. Housing loans, which make up ~70% of consumer lending, grew 5.3% y-o-y in August to S$221.0bn for the month.
Total deposits and balances – which capture deposits in all currencies to non-bank customers – grew by 11.8% y-o-y in August to S$1,723bn. The Current Account and Savings Account (CASA) proportion remained stable at 22.2% of total deposits or S$383.2bn.

Hong Kong’s domestic loans growth declined 0.97% y-o-y and 0.57% m-o-m in August. The y-o-y decline in loans growth for August was higher than the decline of 0.08% in July, while the m-o-m loans growth decline of 0.57% was 15bps higher than July’s loans growth decline of 0.42%.

Singapore Exchange (SGX)'s preliminary SDAV (securities daily average value) for September dipped 7% y-o-y to $1,149mil, as market sentiment remained subdued due to macroeconomic factors. The VIX averaged 27.3 in September, up from 22.2 in the previous month, and the DDAV (derivatives daily average value) rose 2% y-o-y to 1.05mil, up from 0.92mil in August.
The top 5 equity index futures turnover saw a dip of 3.9% y-o-y in September to 14.87mil contracts, mainly due to the lower trading volumes of its FTSE China A50 Index Futures and Nikkei 225 Index Futures. Notably, the Nikkei 225 Index Futures grew 43.1% m-o-m to 1.51mil and the FTSE China A50 Index Futures dipped 2.9% m-o-m to 7.77mil. 3Q22 DDAV is up 2.4% on y-o-y basis.

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. See
SGX (SGX:S68) is another beneficiary of higher interest rates.
DBS (SGX:D05) is added to the Phillip Absolute 10 model portfolio since 3Q21, OCBC (SGX:O39) is added to the Phillip Absolute 10 model portfolio since 2Q22, and SGX (SGX:S68) is recently added to the Phillip Absolute 10 model portfolio for 4Q22. See report: Phillip 4Q22 Singapore Strategy - Phillip Securities 2022-10-04: Hibernating For Winter.

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-10-12

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