The MAS announced loan and deposit growth data for Singapore for July last Friday (29th September), showing that bank loans and advances grew 10.8% year on year (yoy). Macquarie Equities Research (MER) released a research report titled “Loan growth in-line with expectations” on the same day. Some excerpts from the report can be found below.
 
MER thinks that the three key points derived from the figures are that (i) Loan growth outpaces deposit growth (ii) Trade finance loan slow but healthy and Housing loan is holding up well (iii) Residence deposit a weak spot but more a worry for the foreign banks.
 
Impact
Loan growth outpaces deposit growth – While loan growth has slowed, it remains supportive of MER’s expectations for high-single-digit growth for the three Singapore banks. Total system loan growth in Singapore slowed to 15.3% yoy (-0.1% mom) in July 2014 vs 19.7% yoy for the full year of 2013. Combined with system deposit growth of only 3.7% YoY (0.4% MoM), the loan-to-deposit ratio increased to 110% from 105% in December 2013. The Singapore banks continue to have adequate liquidity with loan-to-deposit ratios of below 90%.
 
Trade finance loan slow but healthy – However, it continues to grow faster than total loans, demonstrating high demand, a positive for DBS, in MER’s view. Putting it in numbers, General Commerce loan, a proxy for Trade finance loans grew 19.1% yoy (-0.3% mom).
 
Housing loan holding up well – Despite flat new home sales in Singapore and 33% lesser secondary home sales in July 2014, housing loans continue to grow meaningfully, supported by drawdowns of previously committed housing loans. In July 2014, housing loans grew 7.0% yoy, 0.4% mom.
 
Residence deposit a weak spot but more a worry for the foreign banks – Current account special account (CASA) deposit from residence only grew marginally by 3% yoy, potentially creating funding worries as loans continue to grow at a faster pace. The three Singapore banks have, however, been able to grow CASA deposits by a healthy 8.7% YoY based on 2Q14 figures, due to their strong domestic franchise and transaction banking platform, in MER’s view.
 
MER’s outlook
MER is Overweight Singapore banks on a regional sector basis.
 
Funding pressure may be an issue for 2H, but this may be more of a worry for the foreign banks, in MER’s view. Loan growth has slowed but remains healthy and in-line with MER’s expectations of high-single-digit growth for the three Singapore banks.
 
MER has an Outperform rating on UOB and MER sees good potential for UOB to maintain the best capitalised profile among the Singapore banks. MER rates DBS Outperform which is most geared to rising rates and Greater China among the Singapore banks. MER expects DBS to show the best earnings momentum among the Singapore banks with a gradual improvement in profitability. MER has an Underperform recommendation on OCBC which is almost exclusively based on the WHB acquisition and substantial capital uncertainties as a result of it.

Source: Macquarie Research - 3 Sep 2014