• January’s 3M-SORA was down by 3bps MoM to 3.05%, the first decline since August 2021.
• Singapore domestic loans dipped 0.30% YoY in December, below our estimates, while Hong Kong’s domestic loans declined 2.99% YoY in December. CASA balance dipped slightly to 20.4%.
• Our 4Q22e PATMI estimates are: DBS (S$2.02bn); UOB (S$1.59bn) and OCBC (S$2.03bn). We expect bank NIMs to rise another 34bps in 4Q22. Valuations for OCBC are the most attractive and could offer largest upside surprise from dividends.
• Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive at 5% with possible upside surprise due to excess capital ratios and push towards higher ROEs. SGX is another major beneficiary of higher interest rates [SGX SP, BUY, TP S$11.71].

3M-SOR and 3M-SIBOR growth flattens in January

Interest rates started to flatten in January. The 3M-SORA was down 3bps MoM to 3.05%, while the 3M-SIBOR was up 1bps MoM to 4.25%. The SORA MoM decrease was the first since August 2021 and came after 8 months of double-digit MoM growth, while the SIBOR MoM increase was 22bps lower than the previous month’s increase of 23bps. January’s 3M-SORA improved by 285bps YoY and was 37bps higher than the 4Q22 3M-SORA average of 2.68%. January’s 3M-SIBOR improved by 381bps YoY and was 29bps higher than 4Q22 3M-SIBOR average of 3.96% (Figure 1).

Figure 1: Interest rates flatten in January

Source: Bloomberg, PSR

Singapore loans growth declined in December

Overall loans to Singapore residents – which captured lending in all currencies to residents in Singapore – fell by 0.3% YoY in December to S$814bn. This was below our estimate of mid-single digit growth for 2022 as the rise in interest rates started to be more fully felt by consumers. However, 4Q22 loans grew by 0.8% YoY, as growth in October and November pulled up the decline in December.

Business loans fell by 0.82% YoY in December, as business loans dipped by 1.49% for the month. Loans to the building and construction segment, the single largest business segment, grew 0.74% YoY to S$169bn, while loans to the manufacturing segment fell 1.01% YoY in December to S$25.9bn.

Consumer loans were up 0.56% YoY in December to S$312.9bn, aided by strong loan demand in the housing segment. Housing loans, which make up ~70% of consumer lending, grew 3.60% YoY in December to S$222.5bn for the month.

Total deposits and balances – which captured deposits in all currencies to non-bank customers – grew by 7.32% YoY in December to S$1,716bn. The Current Account and Savings Account (CASA) proportion dipped slightly to 20.4% (Oct22: 20.7%) of total deposits, or S$351bn, as there was a continued move towards Fixed Deposits due to the high interest rate environment.

Source: Phillip Capital Research - 6 Feb 2023