Industry DBU loan growth edged higher at 17.0% in 2013 (2012: +16.7%), fuelled by stronger business loan growth of 22.9%, but moderated by a decelerating housing loan growth of 9.5% (2012: +15.9%).

Industry SGD deposit growth has slowed to 3.6% in 2013; slowest in almost nine years. Notwithstanding, SGD loan-to-deposit ratio remains comfortable at 83.3% in Dec 2013.

Maintain Overweight on banks with DBS being our top sector pick. We would recommend shunning OCBC given the uncertainty over the acquisition of Wing Hang Bank.

Industry loan data for 2013

Industry domestic banking unit (DBU) loans for 2013 were driven by stronger business loan growth of 22.9% (2012: +18.0) on the back of a strong growth in general commerce loans (2013: +32.4%; 2012: +17.5%) which picked up strongly in 4Q13. Dampening the effect was a decelerating consumer loan growth of 8.9% in 2013 (2012: +15.0), which was dragged down by a slowing housing loan growth of 9.5% (2012: +15.9%); slowest in 4.5 years.

SGD LDR higher but remains comfortable

The industry SGD deposit base has flattened out over the past 10 months. It only grew a meagre 3.6% in 2013; slowest since Apr 2005. Based on our estimates, SGD loan-to-deposit (LDR) remained comfortable at 83.3% at end-2013 (2012: 75.4%). We expect industry loan growth to slow to 9-10% in 2014-15. We expect housing loans to grow at 4-6% in 2014-15 reflecting a slowing property market. This, however, will be compensated by a reasonably strong business loan growth of 12-14%. Lending to the general commerce sector is a wildcard that could surprise.

For exposure, DBS is our top sector pick as it is the best positioned to take advantage of a rising interest rate environment. We would stay cautious towards OCBC.

Source: Maybank Kim Eng Research - 3 Feb 2014