Banks - Business Loan Growth Pace Eases

kiasutrader

Publish date: Mon, 02 Dec 2013, 05:36 PM

DBU and ACU loans growth slackened in October to +1% m-o-m (+16.5% y-o-y) vs +1.3% m-o-m in September (+16.4% y-o-y). Business loans growth momentum slowed to +0.7% m-o-m (Sept: +1.4% m-o-m), cushioned by stronger growth from the consumer segment (+1.7% m-om vs Sept: +1.2% m-o-m). We do not expect 4Q loan growth to excite in view of recent guidance from the banks. Maintain NEUTRAL.

Oct DBU and ACU loans growth ease. Loan growth eased in October, with domestic banking unit (DBU) and Asian currency unit (ACU) loans ticking up 1ppt m-o-m (+16.5% y-o-y) vs Sept's +1.3ppt m-o-m (+16.4% y-o-y). Business loans growth momentum slowed to +0.7% m -o-m (Sept: +1.4% m-o-m), largely since the ACU book stayed flat m-o-m (DBU business loans: +2% m-o-m). The consumer segment, however, posted a slightly better 1.7% m-o-m growth (Sept: +1.2% m-o-m), mainly due to ACU loans (+7.8% m-o-m).
DBU loans rose +1.4% m-o-m (+15.6% y-o-y) in Oct vs Sept's +1.1% m-o-m (+15.7% y-o-y). The sequential growth was led by business loans (+2% m-o-m; +19.4% y-o-y) vs Sept's +1.4% m-o-m (+18.6% y-o-y) -driven by loans to financial institutions (+3% m-o-m), transport, storage and communication (+3.7% m-o-m) and general commerce (+2% m-o-m) sectors. On the other hand, DBU consumer loans growth was flat sequentially at +0.6% m-o-m (+10.4% y-o-y) vs Sept's +0.6% m-o-m (+11.7% y-o-y), with housing loans growth sustained at +0.7% m-o-m. Yo-y growth in housing loans, however, moderated further to +11.9% from +12.9% y-o-y in Sept - the slowest pace in four years.
Loan growth continues to outpace deposit growth. October deposits inched up 0.2% m-o-m while y-o-y, total deposits rose 6.5% (Sept: -0.3% m-o-m; +6.5% y-o-y). With loan growth still outpacing deposit growth, the loan-to-deposit ratio (LDR) continued to rise to 103.1% as at end-Oct (end-Sept: 101.8%). However, we note that the SGD LDRs of the three Singapore were significantly lower, ranging between 72.5% (DBS) and 91.7% (UOB). Also, despite the high LDR from the banking statistics, this has not had an impact on funding cost with the banks having reported a q-o-q decline in average funding cost in their recent 3Q results. According to the banks, the wholesale market and corporate fixed deposits (FD) remain attractive funding sources compared with retail FDs.
Investment case. We do not expect 4Q loan growth to excite in view of recent guidance (c. +2% q-o-q) from the banks. Maintain NEUTRAL call. We like DBS (DBS SP, BUY, FV: SDG19.40) given its relatively stronger earnings growth profile, while valuations remain attractive, in our view. 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: SGD24.50) is well-positioned to benefit from the rise of Asean as a new growth haven in the longer term.

Source: RHB

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