Singapore Banking Monthly - Phillip Securities 2022-12-05: Interest Rates Climb While Loans Growth Slows

DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11) SINGAPORE EXCHANGE LIMITED (SGX:S68)

Singapore Banking Monthly - Interest Rates Climb While Loans Growth Slows

November 3M-SORA was up by 41bps m-o-m to 2.69%. 3M-SORA is up 87bps in 2022-to-date.
Singapore domestic loans grew 2.75% y-o-y in October, below our estimates, while Hong Kong’s domestic loans declined 2.70% y-o-y in October. CASA balance stable at 21.1%.
Maintain OVERWEIGHT on banking sector.
- We remain positive on banks. DBS, OCBC & UOB's dividend yields are attractive at 5% with upside surprise due to excess capital ratios. We expect bank NIMs to rise another 34bps in 4Q22.
- SGX is another beneficiary of higher interest rates.

Interest rates continued to increase in November. The 3M-SORA was up 41bps m-o-m to 2.69%, while the 3M-SIBOR was up 36bps m-o-m to 3.99%. The SORA m-o-m increase was 3bps lower than the previous month but still the second highest on record, while the SIBOR m-o-m increase was lower than the previous month’s record increase of 78bps.
The 3M-SORA is 124bps higher than its 3Q22 average of 1.45% and has improved by 253bps y-o-y. The 3M-SIBOR is 151bps higher than its 3Q22 average of 2.48% and has improved by 355bps y-o-y.

Overall loans to Singapore residents – which captured lending in all currencies to residents in Singapore – rose by 2.75% y-o-y in October to S$826bn. This is below our estimate of mid-single digit growth for 2022 as the rise in interest rates start to be more fully felt.
Business loans grew by 2.92% y-o-y in October, as business loans dipped by 2.01% for the month. Loans to the building and construction segment, the single largest business segment grew 3.56% y-o-y to S$170.7bn, while loans to the manufacturing segment grew 8.7% y-o-y in October to S$27.1bn.
Consumer loans were up 2.5% y-o-y in October to S$314.7bn, aided by strong loan demand in the housing segment. Housing loans, which make up ~70% of consumer lending, grew 4.5% y-o-y in October to S$221.9bn for the month.
Total deposits and balances – which captured deposits in all currencies to non-bank customers – grew by 10.2% y-o-y in October to S$1,743bn. The Current Account and Savings Account (CASA) proportion dipped slightly to 21.1% (Sep22: 22.2%) of total deposits or S$368bn as there was a move towards FDs due to the high interest rate environment.

Amongst the various loans segments over the past 5 years, Financial Institution, Investment and Holding Companies (FI) was the fastest growing. We believe bulk of these loans were for commercial property acquisitions especially for REITs.
The three local banks – DBS, OCBC, UOB combined loans to the Financial Institution, Investment and Holding Companies segment grew by 25% in 2021 to S$103.4bn and grew at a CAGR of 6.9% over the past five years. It outpaces total loans CAGR of 4.9%.
The housing loan segment grew by 4.4% in 2021 to S$211.5bn and grew at a more moderate CAGR of 0.8% over the past five years. The housing loan segment is the second largest loan segment, making up 21% of FY21 total loans.
The largest stress in loans portfolio is possibly from the FI segment as it was the fastest growth category. Anecdotally, we do observe stress in commercial property loans to listed companies with exposure in emerging countries such as China, Malaysia, and Myanmar.

Hong Kong’s domestic loans growth declined 2.70% y-o-y and 1.22% m-o-m in October. The y-o-y decline in loans growth for October was higher than the decline of 1.81% in September, while the m-o-m loans growth decline of 1.22% was 75bps lower than September’s loans growth decline of 0.47%.

SGX's preliminary SDAV for November dipped 7% y-o-y to $1,222mil, as market sentiment remained subdued due to macroeconomic factors. The VIX averaged 23.3 in November, down from 30.0 in the previous month, and the DDAV rose 23% y-o-y to 1.22mil in October, up from 1.05mil in September.
SGX's top five equity index futures turnover saw a rise of 16.1% y-o-y in November to 15.3mil contracts, mainly due to the higher trading volumes of its FTSE China A50 Index Futures and MSCI Singapore Index Futures. Notably, the FTSE China A50 Index Futures grew 10.8% m-o-m to 9.32mil and the Nikkei 225 Index Futures dipped 14.8% m-o-m to 1mil.

We remain positive on banks – DBS, OCBC & UOB's 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.
SGX is another beneficiary of higher interest rates.

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-12-05

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