• September 3M-SORA/3M-SIBOR was up by 42bps/32bps MoM to 2.31%/2.85%, the highest in more than a decade. 3Q22 3M-SORA average in 2.31%, up 218bps YoY.
• Singapore domestic loans grew 6.7% YoY in August, tracking our estimates, while Hong Kong’s domestic loans declined 0.97% YoY in August.
• Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive at 5% with upside surprise 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 [SGX SP, BUY, TP S$11.71].

3M-SOR and 3M-SIBOR continue to climb in September

Interest rates continued to increase in September. The 3M-SORA was up 42bps MoM to 2.31%, while the 3M-SIBOR was up 32bps MoM to 2.85%. It is the highest interest rates have been in more than a decade. The 3Q22 3M-SORA is up 30bps QoQ to 2.31%  and has spiked by a massive 218bps YoY (Figure 1).

Singapore loans growth tracking forecast

Overall loans to Singapore residents – which captures lending in all currencies to residents in Singapore – rose by 6.7% YoY in August to S$843bn, tracking our estimate of mid-single digit growth for 2022 as economies in ASEAN begin to recover from the pandemic lockdowns and borders start to reopen.

Business loans grew by 8.2% YoY in August, as business loans grew by 0.8% for the month. Loans to the building and construction segment, the single largest business segment grew 5.1% YoY to S$172.8bn, while loans to the manufacturing segment grew 12.5% YoY in August to S$27.5bn.

Consumer loans were up 4.3% YoY in August to S$315.8bn, aided by strong loan demand in the housing segment. Housing loans, which make up ~70% of consumer lending, grew 5.3% YoY in August to S$221.0bn for the month.

Total deposits and balances – which capture deposits in all currencies to non-bank customers – grew by 11.8% YoY in August to S$1,723bn. The Current Account and Savings Account (CASA) proportion remained stable at 22.2% of total deposits or S$383.2bn.

Hong Kong loans growth dips in August

Hong Kong’s domestic loans growth declined 0.97% YoY and 0.57% MoM in August. The YoY decline in loans growth for August was higher than the decline of 0.08% in July, while the MoM loans growth decline of 0.57% was 15bps higher than July’s loans growth decline of 0.42%.