The Singapore Overnight Rate Average (SORA) may be at a record high, but loan growth has been sluggish at Singapore’s three banks, notes PhillipCapital Research analyst Glenn Thum.
Singapore domestic loans dipped 3.10% y-o-y in February to $804 billion, below Thum’s estimates. “This was below our estimate of mid-single digit growth for 2023 as the rise in interest rates started to be more fully felt by consumers,” notes Thum in PhillipCapital’s monthly note on Singapore's banks.
Meanwhile, the banks’ current account and savings account (CASA) balance dipped slightly to 19.2% of total deposits, or $335 billion, compared to 20.0% in January. Thum cites “a continued move towards fixed deposits due to the high interest rate environment”.
In an April 17 note, Thum maintains “buy” on all three banks here, with target prices of $41.60 for DBS Group D05 , $14.96 for Oversea-Chinese Banking Corporation O39 and $35.70 for United Overseas Bank (UOB) U11 .
UOB will announce its results for 1QFY2023 ended March on April 27. DBS will follow on May 2, before OCBC posts its results on May 10.
Thum is also “overweight” on the banking sector here. “Bank dividend yields are attractive with upside surprises due to excess capital ratios and a push towards higher return on equity. Stable economic conditions and rising interest rates remain tailwinds for the banking sector. Singapore Exchange (SGX) S68 is another beneficiary of higher interest rates.”
SORA is an interest rate benchmark published daily by the Monetary Authority of Singapore (MAS).
The 3M-SORA was up 14 basis point (bps) m-o-m to 3.35%, while the three month (3M)-SIBOR (Singapore Interbank Offered Rates) was down 2 bps m-o-m to 4.19%. The SORA m-o-m increase was similar to the 16 bps increase in February but still the smallest growth recorded since May 2022, while the SIBOR m-o-m decline was the second decline since September 2020.
March’s 3M-SORA improved by 310 bps y-o-y and was 15 bps higher than the 1Q2023 3M-SORA average of 3.20%. Meanwhile, March’s 3M-SIBOR improved by 352 bps y-o-y and was 2 bps lower than 1Q2023 3M-SIBOR average of 4.21%.
See also: 'Buy' banks ahead of FY2022 results, OCBC profit to exceed estimates: PhillipCapital
On domestic loans, business loans fell by 4.47% y-o-y in February.
Loans to the building and construction segment, the single largest business segment, grew 0.28% y-o-y to $171 billion, while loans to the manufacturing segment fell 15.06% y-o-y in February to $22.4 billion.
Consumer loans were down 0.86% y-o-y in February to $311 billion, as dips in other segments were offset slightly by strong loan demand in the housing segment.
Housing loans, which make up approximately 70% of consumer lending, grew 2.57% y-o-y in January to $222.3 billion for the month.
Total deposits and balances — which captured deposits in all currencies to nonbank customers — grew by 6.06% YoY in February to $1.74 trillion.
Volatility rose from US banks’ collapse
See also: UOB to 'lead the pack' when Singapore banks report 4QFY2022 results in February: CGS-CIMB
Securities daily average value (SDAV) for March fell 22% y-o-y to $1.22 billion, as market sentiment remained subdued at the start of 2023 due to macroeconomic factors.
The VIX, or volatility index, averaged 21.6 in March, up from 20.1 in the previous month, and the Derivatives daily average value (DDAV) fell 11% y-o-y to $1.04 million in March, and up 3% m-o-m from $1.01 million in February.
For 1Q2023, SDAV was down 21% y-o-y as market sentiment remained subdued due to macroeconomic factors while1Q2023 DDAV was relatively stable and down 4% y-o-y.
The top five equity index futures turnover saw a dip of 19% y-o-y in March to 14.79 million contracts, mainly due to the lower trading volumes of its FTSE China A50 Index Futures and FTSE Taiwan Index Futures, says Thum.
Notably, all five index futures grew m-o-m, with the Nikkei 225 Index Futures showing the biggest growth of 83.6% m-o-m.
As at 11.57am, shares in DBS are trading 5 cents higher. or 0.15% up, at $32.80; while shares in OCBC are trading 2 cents higher, or 0.16% up, at $12.80; and shares in UOB are trading 14 cents higher, or 0.47% up, at $29.99.
