Banks - September Loans Growth Gains Pace

kiasutrader

Publish date: Fri, 01 Nov 2013, 10:42 AM

DBU and ACU loans growth picked up pace in September (+1.3% m-om; +16.4% y-o-y) vs August (+0.7% m-o-m; +15% y-o-y). Loans in both the business and consumer segments improved slightly, rising by 1.4% m-o-m (+17.9% y-o-y) and 1.2% m-o-m (+12.3% y-o-y) respectively. Nevertheless, we do not expect the positive growth momentum to continue into 4Q13. Maintain NEUTRAL on the sector.

September's domestic banking unit (DBU) and Asian currency unit (ACU) loans growth gathers momentum. Loan growth picked up pace in September, with DBU and ACU loans expanding by 1.3% m-o-m (+16.4% y-o-y) vs August's +0.7% m-o-m (+15% y-o-y). Business and consumer loans improved slightly, with lending in the former rising by a quicker pace of +1.4% m-o-m (+17.9% y-o-y) vs August's +0.8% m-o-m (+15.9% y-o-y). Consumer loans growth, meanwhile, ticked up 1.2% mo-m (+12.3% y-o-y) vs August's +0.7% m-o-m (+12.3% m-o-m).
DBU business loan growth rebounds. DBU loan growth rose +1.1% m-o-m (+15.7% y-o-y) in September vs August's +0.3% m-o-m (+15.4% y-o-y). This was mainly due to a rebound in DBU business loans (1.4% m-o-m; +18.6% y-o-y) vs August's flat m-o-m (+17.4% y-o-y) - driven by a 3.4% m-o-m growth in loans to the general commerce segment. Meanwhile, DBU consumer loans growth eased to +0.6% m-o-m(+11.7% y-o-y) vs August's +0.8% m-o-m (+12.5% y-o-y), as housing loans growth continued to moderate (September: +0.7% m-o-m/+12.9% y-o-y; August: +0.9% m-o-m/+13.5% y-o-y). This, we believe, was largely attributed to the implementation of various cooling measures in the property market. We note that September's y-o-y housing loans growth was the slowest in four years.
Loan growth continues to outpace deposit growth. September deposits declined by 0.3% m-o-m, but rose 6.5% y-o-y (August: flat m-om; +6.4% y-o-y). With loan growth still outpacing deposit growth, the loan-to-deposit ratio (LDR) surged further to hit a new high of 101.8%, as at end-September, compared with 100.5% at end-August. We shall await the upcoming 3Q13 results to see if banks are starting to face funding cost pressures due to the rising LDR.
Investment case. Despite a pickup in September's loans growth, we do not foresee the growth momentum to continue into 4Q13. This will partly be due to seasonality and the property market cooling measures taking effect. We forecast slower loans growth for banks in the quarters ahead, and maintain our NEUTRAL call on the sector. We like DBS (DBS SP, BUY, FV: SDG18.70), given its relatively stronger earnings growth profile, while its valuation remains at a discount to that of its peers. DBS is also less vulnerable to policy changes that affect the property market, given its relatively smaller exposure to this 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 in the longer-term.

Source: OSK

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