Singapore’s December domestic loan growth flat at 3.0% YoY (Nov: +2.8% YoY)
December’s domestic loans growth was held up by business loan growth of 4.1% YoY mainly attributable to Building & Construction’s loan growth acceleration to 12.5% YoY. This is the highest in two and a half years due to the drawdowns of loans from existing projects in the pipeline. However, we expect business loan growth for new construction projects and consumer loan growth for mortgage loans to wind down in 2019 due to the onset of property cooling measures effect. Meanwhile, consumer loan growth weakened to 1.5% YoY (slowest in twelve years) mainly due to the continued slowdown of mortgage loans to 2.0% YoY after peaking in May 2018 at 4.8% YoY. Car loan growth slowed to 5.5% YoY as compared to 2018 monthly average of 7.6% YoY. We expect loan growth for the banks to slow to 6-7% for FY2019e as compared to 8-9% in FY2018e.
Singapore’s December domestic deposits grew 3.5% YoY, the fastest in a year (CASA -0.5% YoY; Fixed deposit +10.5% YoY)
The financial industry has been aggressively plumping up their fixed deposits since August 2018 due to rising interest rates. Singapore’s fixed deposits registered the highest growth in two years at 10.5% YoY as compared to FY2018’s monthly average growth of 1.6% YoY. Deposit growth from Government & Statutory Authorities surged 9.2% YoY, the fastest in two years. While non-bank financial institutions grew 7.9%, the fastest since June 2017. As the financial sector bulks up in pricier fixed deposits, this could result in a squeeze in NIM in the near term but NIM should gradually expand as the banks progressively deploy their stash of deposits as loans repriced at higher rates. December’s market share of fixed deposits and CASA deposits are 39.3% and 60.7% respectively.
Hong Kong’s December loan growth recovered to 4.4% YoY
Hong Kong’s property market continues to slow in December with both residential sales and purchase value and volume contracting 7.5% and 21.8% MoM respectively. Home prices in Hong Kong have started to roll-over (Figure 7). Since the peak in July 2018, prices have softened by 7.5% in December 2018. However, the upward trajectory of interest rates should support the Hong Kong’s banking sector’s NIM.
January’s 3M SIBOR reached 11 year-high at 1.891%, up 0.54bps MoM.
3-month SIBOR came in 1.891%, surpassing last month’s high of 1.886%. 3-month SOR expanded 5.45bps MoM to 1.973%. SIBOR and SOR rose 76 bps YTD and 92 bps YTD respectively in FY2018. Meanwhile, the savings rate in Singapore remained unchanged at 0.16%. With loans pegged to floating and fixed rates taking months and years respectively to reprice, we will continue to see NIM expansion even if there is a pause in interest rate hikes. Hence a large proportion of the rise in interest rates has yet to flow into the Singapore banks’ books with more expected to flow-through in 2019 and beyond.
Investment Actions
Maintain Singapore Banking Sector at overweight. We remain positive on the sector’s continued NIM expansion and rising dividend as a share price catalyst in the next two quarters. The banking sector is paying out a dividend yield of almost 5%. Slower loan growth for the UOB, DBS and OCBC is expected at c.6-7% in 2019e as compared to c.8-9% in 2018e. Property cooling measures, rising interest rates and slowing global growth will be headwinds in loan demand. There is also dividend yield support of c.5% for the sector.
The key catalyst for the banks is the NIM expansion which lies in rising interest rates. We believe the Singapore banks can keep their cost of funds low enough to achieve sequential NIM expansion in the next few quarters. The long-term trend of NIM expansion will offset some of the downsides in loans growth.
Table 1: Peer Comparison
Min Ying covers the Banking and Finance sectors. She has experience in external audit and corporate tax roles.
She graduated with a Bachelor of Accountancy with a major in Finance from SMU.
