Singapore Banking Monthly – Mortgage repricing to offset loan growth deceleration April 1, 2019 579

  • February’s mortgage loan growth continues to decelerate to 1.2% YoY, dipping below last month’s 17-year low of 1.6% YoY.
  • February’s total loan growth remained flat at 3.3% YoY, held up by building and construction loans (+12.7% YoY).
  • February’s domestic deposits rose 6.3% YoY, boosted by fixed deposit growth of 18.9% YoY, the fastest in eleven years. CASA contracted 1.0%.
  • March’s 3-month SIBOR and SOR dip modestly by 0.8bp and 8.1bps to 1.944% and 1.933% respectively.
  • Maintain OVERWEIGHT for the Singapore Banking Sector.


Singapore’s February domestic loan growth flat at 3.3% YoY (January: 3.2% YoY)

February’s domestic loans growth was held up by Business loan growth of 5.2% YoY (Figure 3). Growth was mainly attributable to Building & Construction’s robust loan growth of 12.7% YoY, as compared to a monthly average of 4.9% YoY in 2018. These are drawdowns of loans from existing projects in the pipeline. We expect growth for new construction projects and mortgages to slow down in end 2019 due to property cooling measures.

Meanwhile, Consumer loan growth weakened to 0.54% YoY due to mortgage weaknesses. Mortgage growth decelerated to 1.2% YoY due to property cooling measures and rising interest rates. Due to worsening macro-economic conditions, we expect loan growth for the banks to slow to 4-6% for FY2019e as compared to 7-11% in FY2018.


Singapore’s February domestic deposits grew 6.3% YoY, the fastest in 2 years (CASA contracted 1.0% YoY; Fixed deposit spiked 18.9% YoY)

In a rising interest rate environment, the banking industry has been aggressively plumping up their fixed deposits. Singapore’s February fixed deposits registered the highest growth in 11 years at 18.9% YoY as compared to FY2018’s monthly average growth of 1.6% YoY. Government & Statutory Authorities’ deposit growth surged an impressive 69.1% YoY. As the financial sector bulks up in pricier fixed deposits, the corresponding rise in the cost of funds makes it a constant challenge for the banks manage costs well enough to achieve NIM expansion. January’s proportion of fixed deposits and CASA as a percentage of total deposits are 41% and 59% respectively.


Hong Kong’s February loan growth flat at 3.0% YoY

Loan growth of 3.0% YoY in February was unexciting as compared to a monthly average growth of 10.3% YoY in 2018. Hong Kong’s January residential sales and purchase value and volume fell 19.7% and 10.0% MoM respectively. Home prices in Hong Kong have started to roll-over (Figure 7). Since the peak in July 2018, prices have softened by 8.9% in February 2019. Higher interest rates should support the banking sector’s profitability.


March’s 3-month SIBOR at 1.944%, 0.8 bps below last month’s 11 year-high of 1.953%

3-month SOR fell 8bps MoM to 1.933%. Meanwhile, the savings rate in Singapore remained unchanged at 0.16%. Despite the dovish tone set by the US Federal Reserve, we expect the banks to deliver NIM improvements due to the time lag for rate hikes to pass-through although we do not expect interest rates to rise as fast as it did in 2018. The rise in SIBOR and SOR for the past year should reflect positively in the upcoming banking results in May 2019. However, margins could be threatened by costlier funding as interest rates rise in the region. In Hong Kong, 3-month HIBOR fell 57 bps YTD after peaking in December 2018 at 2.327%.


Investment Actions

Maintain Singapore Banking Sector at Overweight. We expect further upside in NIM improvements from the full impact of loan repricing. Low provisions and better cost management should also provide upsides to ROE improvements. The banking sector provides an attractive dividend yield support of c.5%. All three banks’ robust CET-1 ratios should sustain current pay-out ratios.  Key risks include (i) lower pass-through of interest rates; (ii) margins threatened by costlier funding as interest rates rise in the region; (iii) market volatility to pressure Treasury Market revenues downwards; (iv) CIR ratio weakened by investment costs.

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About the author

Profile photo of Tin Min Ying

Tin Min Ying
Research Analyst
Phillip Securities Research Pte Ltd

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.

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