Singapore Banks

Kim Eng on 1 Sept 2014

• Industry DBU loan growth slowed to 10.8% YoY in July, on slowing business (+14.1%) and housing loan growth (+7.0%).
• SGD deposit growth (+0.7% MoM, +0.1% YoY) remained paltry. SGD LDR improved a tad to 86.5%.
• Remain Neutral on banks. DBS our top sector pick.

Loan growth continued to lose steam
Industry domestic banking unit (DBU) loans grew a slower 10.8% YoY in July, particularly for business loans (+14.1%). Lending for general commerce (+18.8% YoY) and to financial institutions (+23.4%) continued to anchor DBU loans. Property weakness continued to drag down consumer loan growth (+6.0% YoY), to its slowest in seven years. The domestic loan-growth slowdown may manifest itself in Singapore banks’ loan data for 3Q14. However, the impact should be cushioned by stronger loan demand from Greater China, which has been gaining in importance.
SGD LDR could rise further
SGD deposits rose just 0.7% MoM or 0.1% YoY in July. Holding cash remains unappealing when interest rates are so depressed. As a result, SGD LDR continued to hover around to 86.5%, a level we are still comfortable with. But with deposit growth expected to remain sluggish, SGD LDR could rise further.
We expect industry loan growth to slow to 9-10% in 2014-15. Housing loans should expand just 4-6%, in tandem with a slowing property market. However, we believe its slack will be picked up by reasonably strong business loan growth of 12-14%. Lending for general commerce could prove to be the wild card.
For exposure, DBS is our top sector pick (BUY, TP SGD23.40). It should be best positioned to take advantage of an eventual rise in interest rates.