Domestic loans grew 4.5% YoY in September
September’s domestic loans growth was driven by business loans that rose 5.3% YoY. There was healthy loan demand from the building & construction and financial institutions. Building & construction growth sustained last month’s strong performance of 8.6% YoY, the highest in 2 years, due to the drawdowns of loans from existing projects in the pipeline. With the property cooling measures in place, we expect loans to new projects to slow down in 2019. Meanwhile, Consumer loans growth slowed down to +3.3% YoY (the lowest in 17 months) due to slight weaknesses in housing and car loans. Car loans held up this year’s strong momentum with +8.1% YoY growth; while housing loans rose +3.5% YoY, the fourth consecutive month of decreasing loans growth from the peak of 4.8% YoY in May.
Domestic deposits +2.4% YoY in September (CASA -0.2%; Fixed deposit +6.8%)
In anticipation of steeper interest rates, the banking sector has been shoring up its funding position. Total deposits increased 2.4% YoY, the fastest in almost a year, stimulated by a rebound in deposit growth by government & statutory authorities and non-bank financial institutions. As the banks bulk up in deposits especially the pricier fixed deposits (39.1% of total deposits in September), this could result in a squeeze in NIMs, albeit in the near term. Fixed deposit growth spiked to 6.8% YoY (highest in 2 years) as compared to the ten-year average growth of 2.8% YoY. NIM should gradually expand as the banks deploy these stash of deposits as loans.
SIBOR held up last month’s decade high
October’s 3-month SIBOR maintained last month’s high at 1.64%. We expect another rate hike in December from the Federal Reserve. Furthermore, FOMC minutes and dot plots point to three more rate hikes in 2019. Despite the 52bps rise in 3-month SIBOR this year, mortgage loans growth has remained resilient at 3.5% YoY. 3-month SOR contracted slightly, registering 1.602% in October. Average 3-month SOR YTD increased 76.2% YoY. Meanwhile, the savings rate in Singapore remained unchanged at 0.16%. We would expect the banks’ NIM to improve moderately with a time lag, given the expectations of further rate hikes from the Federal Reserve and the increase in the cost of funds in the near term.
Hong Kong’s loans in September grew 7.2% YoY – slowest in almost two years
Hong Kong’s domestic currency loans grew 12.4% YoY (slowest in 16 months). Hong Kong’s property market has been slowing down the past few months with both sales volume and value trending downwards. According to JLL Hong Kong, September’s residential sales volume and value fell 27.4% MoM and 20.7% MoM respectively. Uncertainties over the escalating trade war and the overall global slowdown could result in a tapering of loans growth. The upward trajectory of interest rates is expected to continue.
INVESTMENT ACTIONS
Maintain Singapore Banking Sector at BUY. We are positive on the sector’s continued NIM expansion, loans growth and rising dividend as a share price catalyst. The key catalyst for NIM expansion lies in rising interest rates. We believe the banks have the ability to suppress their cost of funds low enough to achieve sequential NIM expansion in the next few quarters. The long-term trend of NIM expansion may offset downsides in trade loans growth if any. In conclusion, banks continue to enjoy dual drivers of expanding loans volume and interest margins this year.
Important Information
This report is prepared and/or distributed by Phillip Securities Research Pte Ltd ("Phillip Securities Research"), which is a holder of a financial adviser’s licence under the Financial Advisers Act, Chapter 110 in Singapore.
By receiving or reading this report, you agree to be bound by the terms and limitations set out below. Any failure to comply with these terms and limitations may constitute a violation of law. This report has been provided to you for personal use only and shall not be reproduced, distributed or published by you in whole or in part, for any purpose. If you have received this report by mistake, please delete or destroy it, and notify the sender immediately.
The information and any analysis, forecasts, projections, expectations and opinions (collectively, the “Research”) contained in this report has been obtained from public sources which Phillip Securities Research believes to be reliable. However, Phillip Securities Research does not make any representation or warranty, express or implied that such information or Research is accurate, complete or appropriate or should be relied upon as such. Any such information or Research contained in this report is subject to change, and Phillip Securities Research shall not have any responsibility to maintain or update the information or Research made available or to supply any corrections, updates or releases in connection therewith.
Any opinions, forecasts, assumptions, estimates, valuations and prices contained in this report are as of the date indicated and are subject to change at any time without prior notice. Past performance of any product referred to in this report is not indicative of future results.
This report does not constitute, and should not be used as a substitute for, tax, legal or investment advice. This report should not be relied upon exclusively or as authoritative, without further being subject to the recipient’s own independent verification and exercise of judgment. The fact that this report has been made available constitutes neither a recommendation to enter into a particular transaction, nor a representation that any product described in this report is suitable or appropriate for the recipient. Recipients should be aware that many of the products, which may be described in this report involve significant risks and may not be suitable for all investors, and that any decision to enter into transactions involving such products should not be made, unless all such risks are understood and an independent determination has been made that such transactions would be appropriate. Any discussion of the risks contained herein with respect to any product should not be considered to be a disclosure of all risks or a complete discussion of such risks.
Nothing in this report shall be construed to be an offer or solicitation for the purchase or sale of any product. Any decision to purchase any product mentioned in this report should take into account existing public information, including any registered prospectus in respect of such product.
Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may provide an array of financial services to a large number of corporations in Singapore and worldwide, including but not limited to commercial / investment banking activities (including sponsorship, financial advisory or underwriting activities), brokerage or securities trading activities. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have participated in or invested in transactions with the issuer(s) of the securities mentioned in this report, and may have performed services for or solicited business from such issuers. Additionally, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may have provided advice or investment services to such companies and investments or related investments, as may be mentioned in this report.
Phillip Securities Research or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report may, from time to time maintain a long or short position in securities referred to herein, or in related futures or options, purchase or sell, make a market in, or engage in any other transaction involving such securities, and earn brokerage or other compensation in respect of the foregoing. Investments will be denominated in various currencies including US dollars and Euro and thus will be subject to any fluctuation in exchange rates between US dollars and Euro or foreign currencies and the currency of your own jurisdiction. Such fluctuations may have an adverse effect on the value, price or income return of the investment.
To the extent permitted by law, Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may at any time engage in any of the above activities as set out above or otherwise hold an interest, whether material or not, in respect of companies and investments or related investments, which may be mentioned in this report. Accordingly, information may be available to Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, which is not reflected in this report, and Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited to its officers, directors, employees or persons involved in the issuance of this report, may, to the extent permitted by law, have acted upon or used the information prior to or immediately following its publication. Phillip Securities Research, or persons associated with or connected to Phillip Securities Research, including but not limited its officers, directors, employees or persons involved in the issuance of this report, may have issued other material that is inconsistent with, or reach different conclusions from, the contents of this report.
The information, tools and material presented herein are not directed, intended for distribution to or use by, any person or entity in any jurisdiction or country where such distribution, publication, availability or use would be contrary to the applicable law or regulation or which would subject Phillip Securities Research to any registration or licensing or other requirement, or penalty for contravention of such requirements within such jurisdiction.
This report is intended for general circulation only and does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The products mentioned in this report may not be suitable for all investors and a person receiving or reading this report should seek advice from a professional and financial adviser regarding the legal, business, financial, tax and other aspects including the suitability of such products, taking into account the specific investment objectives, financial situation or particular needs of that person, before making a commitment to invest in any of such products.
This report is not intended for distribution, publication to or use by any person in any jurisdiction outside of Singapore or any other jurisdiction as Phillip Securities Research may determine in its absolute discretion.
IMPORTANT DISCLOSURES FOR INCLUDED RESEARCH ANALYSES OR REPORTS OF FOREIGN RESEARCH HOUSE
Where the report contains research analyses or reports from a foreign research house, please note:
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.
