DBU and ACU loan growth eased to +0.7% m-o-m/+15% y-o-y in August vs  July's  +0.9%  m-o-m/+16.2%  y-o-y.  The  slowdown was  largely  in  line with  our  expectations,  reflecting  a  combination  of  seasonality  and property  market  cooling  measures  taking  effect.  Of  note,  y-o-y  growth for consumer loans stood at 12.3%, its slowest pace since March 2010. Maintain NEUTRAL on the sector. 

- August  DBU  +  ACU  loan  growth  eased.  Loans  growth  eased  in August, with domestic banking unit (DBU) and Asian currency unit (ACU) loans  expanding  by  0.7%  m-o-m  (+15%  y-o-y)  vs  July's  +0.9%  m-o-m (+16.2% y-o-y). Business lending rose by a more modest pace of +0.8% m-o-m/+15.9% y-o-y (July 2013: +1% m-o-m/+17.4% y-o-y) while growth for  consumer  loans  stood  at  0.7%  m-o-m/+12.3%  y-o-y  (July  2013: +0.6%  m-o-m/+13.1%  m-o-m).  Of  note,  August's  y-o-y  growth  for consumer  loans  was  the  slowest  since  March  2010,  as  housing  loans growth slowed down further to 12.4% y-o-y (July 2013: +13% y-o-y), its slowest since Sept 2009.   

- DBU  loans  to  businesses  slowed.  Aug  2013  DBU  loan  growth  eased to  +0.3%  m-o-m/+15.4%  y-o-y  vs  July's  +1.2%  m-o-m/+17.6%  y-o-y. This  was  mainly  due  to  a  slowdown  in  DBU  business  loans  (flat  m-o-m/+17.4%  y-o-y  vs July's  +1.6%  m-o-m/+20.8%  y-o-y),  following  the m-o-m  decline  in  loans  to  the  manufacturing  (-9.4%  m-o-m)  and  general
commerce  (-1.8%  m-o-m)  segments.  Meanwhile,  DBU  consumer  loans growth  held  steady  at  +0.8%  m-o-m  but  y-o-y  growth  was  slower (+12.5%  y-o-y  vs  July  2013:  +13.2%  y-o-y).  Growth  in  housing  loans displayed similar trends (Aug 2013: +0.9% m-o-m/+13.5% y-o-y vs July: +0.8%  m-o-m/+14.1%  y-o-y)  and  we  expect  growth  to  continue  to moderate as the property market cooling measures implemented earlier start to filter through the system.

- Loan  growth  continues  to  outpace  deposit  growth.  Aug  2013 deposits stayed flat  m-o-m  but  rose  6.4%  y-o-y  (July  2013: +0.6%  m-o-m/+7.9%  y-o-y).  With  loan  growth  still  outpacing  deposit  growth,  the loan-to-deposit  ratio  (LDR)  rose  further  to  another  new  high  of  100.5% as at end-Aug 2013, compared with 100.1% at end-July 2013.

- Investment  case.  On  the  whole,  Aug  2013's  statistics  were  largely  in line  with  our  expectations  that  growth  would  moderate  in  the  upcoming months, partly due to seasonality and property market cooling measures taking effect. In our forecasts, our loan growth assumptions for the banks already  imply  slower  growth  in  the  quarters  ahead.  We  maintain  our NEUTRAL  call  on  the  sector.  We  like  DBS  (DBS  SP,  BUY,  FV: SDG18.70)  given  its  relatively  stronger  earnings  growth  profile,  while valuations are still at a discount to peers. DBS is also less vulnerable to policy  changes  affecting  the  property  market  sector  given  its  relatively smaller  exposure  to  the  segment.  Elsewhere,  we  think  UOB  (UOB  SP, BUY, FV: SGD24.40) is well-positioned to benefit from the rise of Asean as a new growth haven over the longer term.

Source: OSK