Singapore Banks May loans – still on a downhill

DBU loan growth (Exhibit 1) continued to contract to 5.5% y-y in May (April: 7.6%; March: 8.6%). The decline was attributed to the broad-based drop in business loan growth (Exhibit 10-13) which in the month of May suffered its seventh monthly contraction. Business loans contracted 0.1% m-m but grew 3.7% y-y (April: -0.9%; +7.3%). On the brighter side, consumer loan growth (Exhibit 4) remained resilient at 0.8% m-m or 7.9% y-y (April: +0.6%; +7.9%), largely thanks to solid housing loans following the recent revival of the local property market and more home completions.

ACU loans (Exhibit 2) recorded a 3.1% y-y contraction (March: -1.3%; February: +2.3%), primarily dragged by a continuation of the severe slowdown in consumer loans (May: -21.8%; April: -16.9%). ACU business loan growth also dipped into its first y-y contraction (May: -0.7%; April: +0.6%).

Massive liquidity remains a big plus – the loan-deposit ratio continued to hover around the 74% mark and there was excess deposits of SGD93.7b available in the system. Industry customer deposits have expanded by 4.9% YTD. Continued improvement in the deposit mix is another positive: the fixed deposit (FD) mix has now fallen to an all-time low of 46.8% (Exhibit 15). We expect the trend to persist as depressed FD rates and a buoyant equity market will encourage deposit migration to more flexible and liquid deposits such as current and savings deposits.

Trading close to its historical P/E mean, we think share prices have priced in an earnings recovery scenario and potential reversal of paper losses from investment books. Trading at mid-cycle valuation, banks do not look attractive and the initial re-rating may have run its course, in our view. We would await a pullback to regain entry. UOB remains our top sector pick for its more exciting ROE profile.

Click here for more Banks and Financial Institutes Technical Analysis

Sponsored Links

Related Posts by Categories