- December’s 3M-SORA was up by 39bps MoM to 3.08%. 4Q22 3M-SORA was up 252bps YoY.
- Singapore domestic loans grew 0.67% YoY in November, below our estimates, while Hong Kong’s domestic loans declined 3.02% YoY in November. CASA balance dipped slightly to 20.7%.
- Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive at 5% with upside surprise due to excess capital ratios. We expect bank NIMs to rise another 34bps in 4Q22. SGX is another major beneficiary of higher interest rates [SGX SP, BUY, TP S$11.71].
3M-SOR and 3M-SIBOR continued to climb in December
Interest rates continued to increase in December. The 3M-SORA was up 39bps MoM to 3.08%, while the 3M-SIBOR was up 23bps MoM to 4.24%. The SORA MoM increase was 2bps lower than the previous month, but still the third highest on record, while the SIBOR MoM increase was 15bps lower than the previous month’s increase of 38bps. The 4Q22 3M-SORA average of 2.68% was 125bps higher than its 3Q22 average of 1.43% and improved by 252bps YoY. The 4Q22 3M-SIBOR average of 3.96% was 149bps higher than its 3Q22 average of 2.47% and improved by 352bps YoY (Figure 1).
Recovery of treasury income to boost SGX’s earnings
Treasury income dipped in FY21 and FY22 due to the low interest rate environment. However, we expect a rebound in treasury income in FY23e by at least 8%. Based on historical data, we can see that SGX’s treasury income is lagging behind the Fed Fund Rates (Figure 2). As a majority of SGX’s collateral balances (FY22: S$13.9bn) are placed in Fixed Deposits (FDs) with the tenure spread out, certain deposits are yet to matured and the interest rates have not been refreshed. Nonetheless, moving into FY23 we should expect the treasury income to recover to pre-pandemic levels as they get placed into higher interest FDs. For context, in FY20, SGX earned a yield of 98 basis points on collateral balances of S$13.7bn resulting in treasury income of S$135mn when the Fed fund rate peaked at 2.50%. Treasury income in FY22 was S$49mn, an average yield on collateral of only 36 basis points.
Singapore loans growth slowing down
Overall loans to Singapore residents – which captured lending in all currencies to residents in Singapore – rose by 0.67% YoY in November to S$816bn. This was below our estimate of mid-single digit growth for 2022 as the rise in interest rates started to be more fully felt by consumers.
Business loans grew by 0.43% YoY in November, as business loans dipped by 1.49% for the month. Loans to the building and construction segment, the single largest business segment, grew 2.64% YoY to S$171.4bn, while loans to the manufacturing segment grew 3.41% YoY in November to S$26.2bn.
Consumer loans were up 1.04% YoY in November to S$313.3bn, aided by strong loan demand in the housing segment. Housing loans, which make up ~70% of consumer lending, grew 3.97% YoY in November to S$222bn for the month.
Total deposits and balances – which captured deposits in all currencies to non-bank customers – grew by 6.36% YoY in November to S$1,719bn. The Current Account and Savings Account (CASA) proportion dipped slightly to 20.7% (Oct22: 21.1%) of total deposits, or S$356bn, as there was a move towards FDs due to the high interest rate environment.
Hong Kong loans growth dipped in November
Hong Kong’s domestic loans growth declined 3.02% YoY and 0.35% MoM in November. The YoY decline in loans growth for November was higher than the decline of 2.70% in October, while the MoM loans growth decline of 0.35% was 87bps lower than October’s loans growth decline of 1.22%.
Source: Phillip Capital Research - 13 Jan 2023
