Yesterday, the Singapore Monetary Authority of Singapore and Bank Negara Malaysia released their respective loan and deposit growth data for the month of February 2015. The statistics showed Singapore's fixed deposit rates are still not repricing, which is a positive for banks margins. However, loan growth in general has not been fantastic.

In a report published yesterday on 1 April 2015, Macquarie Equities Research (MER) shared their analysis of the loan and deposit growth data as they juxtaposed Singapore banks against Malaysian banks…

MER’s conclusion – Domestic loan growth has been weak but Singapore banks are likely to benefit from asset repricing. Deposit funding costs have not yet meaningfully increased. For Malaysia banks, loan and deposit growth month-on-month was weak. Asset yields of the Malaysia banks have not improved meaningfully, with average lending rates staying relatively constant since the Overnight Policy Rate hike in July 2014.
 
Impact
Key takeaways for Singapore – Total system loan growth in February 2015 was 7.5% year-on-year (1.1% month-on-month) which compares to system deposit growth of 8.9% year-on-year (1.4% month-on-month). The interesting points in February 2015 were that (i) domestic lending was weak (-0.7% month-on-month) particularly trade finance related loans (-2.7% month-on-month) while real estate related lending is holding up (ii) domestic current accounts and savings accounts CASA deposits are outgrowing fixed deposits and (ii) no meaningful increase in fixed deposit costs so far despite the sharp increase in SIBOR.


Key takeaways for Malaysia – Total system loan growth in February 2015 was 8.8% year-on-year (0.4% month-on-month) which compares to system deposit growth of 8.3% year-on-year (0.4% month-on-month). The interesting points in February 2015 were that (i) housing loan growth of 13.3% year-on-year was strong but mainly due to drawdowns of previous commitments (ii) slight month-on-month uptick in household related non performing loans (NPLs) (iii) NPL coverage ratio continues to fall to 98%.
 
MER outlook
MER remains Overweight on the Singapore banks, and Underweight on the Malaysia banks, on a regional sector basis.

For Singapore, domestic loan growth trends are weakening which is a risk to the topline growth story of DBS – particularly due to the weakness in trade finance loan growth. UOB is seen less of a topline growth story by the market and would be a key beneficiary if fixed deposit costs remain flattish for longer.

For Malaysia the loan and deposit growth trends since end December 2014 have been weak. Ignoring seasonality, the annualised loans and deposits growth rate would only be below 5% YoY compared to December 2014 levels. MER estimates high single digit loan growth for the full year for the sector.
The slight uptick in Malaysia household NPL is a point to monitor. MER thinks that the credit quality of housing loans will hold up, but MER is cautious on unsecured lending. Unsecured lending accounts for between 4%-8% of total loans for the banks under MER's coverage based on December 2014 figures. AFG, RHB, HLB and CIMB have relatively high exposure of >5%.

Source: Macquarie Research - 2 Apr 2015