Singapore Banks

Kim Eng on 3 Mar 2014

• Industry DBU loans expanded by 16.5% YoY in January, driven by robust business loan growth of 22.5%. But housing loan growth was at a five-year low of 8.6%.
• Industry SGD deposit growth of 2.9% YoY was the slowest in almost nine years. But SGD loan-to-deposit ratio was still a comfortable 83.6% in Jan 2014.
• Maintain Overweight on Singapore banks with DBS our top sector pick. Shun OCBC given the uncertainty over its proposed bid for Wing Hang Bank.

January loan data lifted by business loans
Business loan growth of 22.5% YoY in January continued to be the main pillar of support for industry domestic banking unit (DBU) loans (+16.5%) for the month. General commerce loans (+31.0% YoY) remained the key business loan driver. However, the general uptrend was dampened by a persistently sharp slowdown in housing loan growth at 8.6%, the slowest in almost five years.

SGD LDR inching up but still comfortable
The industry SGD deposits grew a meagre 2.9% YoY in January, the slowest since Feb 2005. The current depressed interest rates make holding cash unappealing. Although the SGD loan-to-deposit ratio (LDR) has been inching up, we are still comfortable with January’s figure of 83.6%. With deposit growth expected to remain lethargic, SGD LDR looks set to rise further in 2014.

We expect industry loan growth to slow to 9-10% in 2014-2015, with housing loans rising 4-6% in tandem with a slowing property market. However, we believe the shortfall would be compensated by a reasonably strong business loan growth of 12-14%. Lending to the general commerce sector could prove to be the wild card. For exposure, DBS is our top sector pick as it is the best positioned to take advantage of a rising interest rate environment. We would stay cautious towards OCBC.