• Singapore October domestic loans growth was up 6.8% YoY, 2^nd consecutive month of acceleration. Loan demand driven by stronger property related business loans.
• Hong Kong October domestic loans growth was 22.3% YoY, driven by IPO loans.
• SIBOR and HIBOR spiked up at the end of November signalling an increase in mortgage rates in Hong Kong and Singapore.
• Narrowing spread between 1mth and 3mth HIBOR is tailwind for Hong Kong NIMs.
• Maintain Accumulate for the Singapore Banking Sector.

Singapore October domestic loans +6.8% YoY as business loans growth remain buoyant

Singapore domestic business loans grew 9% in October driven by strong property related business loans as other business loans remained relatively stable. Building and construction loans growth of 0.9% was lacklustre. Car loans registered 4.5% YoY growth, the highest since the beginning of 2013.

Hong Kong Q2 and Q3 domestic loans registered 10.6% and 12.6% growth respectively as property related loans accelerated.

Hong Kong mass market residential values are up 13.1% YTD and is expected to grow 15% for FY17 (according to JLL Hong Kong November residential sales market monitor). Outstanding value of mortgage loans continue to climb higher sequentially, increasing 0.3% MoM to HK$1,190.2bn at end of October. Loans growth was also driven up by a buoyant IPO loans market at the end of October in preparation for mega IPOs like China Literature and Yixin Group in early November.

SIBOR rates moved up higher at the end of November

Our channel checks show that the Singapore banks’ fixed rate home loan packages have risen in December from a month ago. But we did not notice big changes to the spread on SIBOR pegged loans.

1-month HIBOR was sharply higher in November signalling higher mortgage rates in HKG

We believe that part of the strong spike in 1 month HIBOR was due to the strong demand for IPO loans which soaked up a substantial amount of liquidity in the short duration money market. Most of Hong Kong’s new mortgages continue to be referenced to HIBOR. In October 93.1% of new mortgages within Hong Kong were priced with reference to HIBOR, a slight decline from September’s 93.4%.

Asset quality in Singapore and Hong Kong is expected to remain robust

The strong economic growth continues to support asset quality as we saw 3Q GDP growth for Hong Kong (3.6% YoY) and Singapore (5.2% YoY) beat estimates. Bankruptcy orders in Singapore are in a declining trend and Hong Kong mortgage delinquency ratio remains low at 0.02%. Over at the offshore oil and gas space, semisubmersibles utilisation could be bottoming out and Jackups utilisation has recovered to levels last seen in 2015. However, in both cases, day rates continue to languish at an all-time low.

INVESTMENT ACTIONS

Maintain Singapore Banking Sector at Accumulate – All indicators such as volume, margins and asset quality point to a healthy 4Q17 for the banking sector. Valuations of Singapore banks continue to be undemanding at between 1.1x and 1.2x P/BV.