• June 3M-SIBOR was up by 28bps MoM, the highest since Feb 2020.
• SGX’s 1H22 top five equity index futures turnover was up 13.9% YoY. We estimate SGX securities and derivatives volumes from 1H22 was down 3% and up 14% YoY respectively.
• Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive with upside surprise due to excess capital ratios. Stable economic conditions and rising interest rates remain tailwinds for the banking sector. SGX is another beneficiary of higher interest rates. Pressure points for the banks will be higher staff cost and nudge in general provisioning due to weaker economic assumptions.

3M-SOR and 3M-SIBOR up in June

Interest rates continued to increase in June. The 3M-SOR was up 33bps MoM to 1.80%, while the 3M-SIBOR was up 28bps MoM to 1.49%. It is the highest interest rates have been since Feb 2020. The 3M-SOR is 36bps higher than its 2Q22 average of 1.44% and has improved by 156bps YoY. The 3M-SIBOR is 27bps higher than its 2Q22 average of 1.22% and has improved by 106bps YoY (Figure 1).

Loans growth on par with nominal GDP growth

Loans growth over the past two years was a CAGR of 7.5% is on par with the two-year CAGR of nominal GDP at 7.5%. This is unlike the 2008 global financial crisis (GFC) provisioning cycle, when loans growth was outpacing nominal GDP growth. The two-year CAGR of loans at 25.3% compared to nominal GDP at 20.9%. We believe it is indicative of excessive lending by the banks. In the 2016 (oil and gas) provisioning cycle, loans growth also exceeded nominal GDP growth, with the two-year CAGR of loans at 1.99% compared to nominal GDP at -1.15%.

Source: Phillip Capital Research - 4 Jul 2022