Singapore Banking Monthly – Slow but sustainable growth June 6, 2019 855


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Singapore’s April loan growth slowed further to 1.4% YoY (March: 2.2% YoY)

April’s loan growth was held up by business loan growth of 2.3% YoY (Figure 3). Building and Construction (B&C) loans made up 33.7% of total business loans, and its growth remained robust at 13.0% YoY due to drawdown of loans from existing projects in the pipeline. We expect property cooling effect to hit B&C loan growth near end 2019.

Consumer loans (Figure 3) contracted for the first time in decades, hammered by persistent weakness in housing loans. Housing loan growth was flat-lined at 0.1% YoY, curbed by property cooling measures and high interest rates. Housing loans make up a substantial part of the lending business (30% of total loans). Our worry is the continuous contraction in loans which may limit the upside in net interest margins due to competition.

Loan growth is expected to be muted at mid-single-digit growth this year due to property cooling measures (which proved effective in curbing housing demand) and slowing economic growth. We expect loan growth for the Singapore banks to slow to 4-6% for FY2019e (2018: 7-11%).


Deposits – Contracting CASA

CASA deposits contracted 1.1% YoY, the slowest in 3 years (Figure 4). Fixed deposits continues to surge, growing 21.6% YoY in comparison to FY18’s monthly average of 1.6% YoY. With a higher proportion of fixed deposits in the deposits mix, the cost of fund rises, making it a constant challenge for banks to manage costs well enough to achieve NIM expansion.  However, we expect competition for fixed deposits to taper off in the 2H19 and funding pressure to ease since no more rate hikes are expected in 2019 in the U.S.


May’s 3-month SIBOR at 2.007%, 6.2bps above last month’s 1.946%

3-month SOR broke above the 2% level as well, rising 8.0bps MoM to 2.052%. Meanwhile, the savings rate in Singapore remained unchanged at 0.16%. However, we believe the pause in interest rate hikes limits the upside for NIM expansion. As we reach the end of the interest rate cycle, 2Q19 results may be the last NIM rally for the year. We still expect the banks to deliver full year NIM improvements due to the lagged effect of loan repricing, albeit at a lower magnitude of around 4 bps in FY19e.

Hong Kong’s April loan growth fell to 0.5% YoY

Loan growth of 0.5% YoY in April was the slowest in almost 3 years (Figure 8). Hong Kong’s loan demand remained cautious due to high interest rates and lingering trade tensions. Hong Kong’s April residential sales and purchase value and volume rose 52.8% and 49.5% MoM respectively. Home prices in Hong Kong recovered back to the peak levels last seen in July 2018 (Figure 10). Meanwhile, 3-month HIBOR rose 5.3bps to 2.135%. Higher interest rates should support the banking sector’s profitability.

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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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