Singapore Banks - June Loans Rise on Mortgage Growth

Singapore mortgage growth rose 4% YTD — Domestic system loans rose by 0.5% MoM (+4.2% YoY, flat YTD) to S$272bn as consumer/mortgage growth offset continued weakness in business lending (down 3% YTD). The completion in 2009 of an estimated 4,560 units under the DPS scheme and another 2,540 units in 2010 is likely driving mortgage drawdowns, with this year's pick-up in property transactions also likely to assist mortgage momentum in 2010. Loan-to-deposit ratio fell to 73.1% (May: 74.3%) as system deposits rose by 2.1% MoM to S$372bn (+11.7% YoY, +7% YTD), suggesting liquidity remains flush.

Sharp rebound in 2Q09 GDP — The 20.4% QoQ SAAR jump in 2Q09 GDP marks the first QoQ increase since 1Q08, and together with the upward revision to 1Q09 numbers will provide a statistical uplift to GDP numbers for rest of ‘09. Economist Kit expects GDP to contract 2.7% for ‘09 (vs. govt. forecast of -4 to -6%).

Banks, STI closing in on mid-cycle P/B levels — Our investment case for the banks is that Singapore will return to positive YoY GDP growth by 4Q09, so banks (and the STI) should normalize towards mid-cycle P/B levels. A rally of c.20% in 3 weeks has brought the banks (and STI) close to those mid-cycle P/B values. While we expect 2Q09 results (out first week of August) to surprise a bearish consensus on the upside, prices already may be factoring in strong 2Q results. If Singapore can pull out of recession in 3Q09, and the banks deliver 2Q numbers ahead of our above-consensus forecasts, then the recent rally might be sustained.

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