Singapore Banks

Singapore Banks: Singapore’s December 2014 loan book display signs of weakness especially on the corporate front. Overall full year loan growth was slowest since 2009. System loans (DBU + ACU) eked out growths of only 0.1% m/m, 1.5% q/q and 9.2% y/y, despite being lifted by 2% depreciation in SGD. DBU loans were flat (-0.03% m/m, +0.8% /q, +5.9% y/y). Decline in domestic business loan book (-0.4% m/m, +0.4% q/q, +6.4% y/y) were only partially offset by increase in consumer loan balances (+0.5% m/m, +1.3% q/q, +5.16% y/y). The business front is depressed by manufacturing loans (-6.4% m/m, -3.6% m/m, -6.3% y/y), trade loans (-1.2% m/m, -3.1% q/q, +2.9% y/y) and financial institution loans (-2.0% m/m, -1.0% q/q, +5.9% y/y), offset by agriculture and mining (+1.9% m/m, +7.7% q/q, +27.3% y/y), construction and building (+0.9% m/m, +4.3% q/q, +13.6% y/y) and transport (+2.8% m/m, +4.9% q/q, +17.3% y/y). Most notably, persistent deceleration in trade loans reflects a challenging global environment. The consumer front is lifted by housing loans (+0.7% m/m, +1.6% q/q, +6.5% y/y) and credit card loans (+2.0% m/m, +3.8% q/q, +4.8% y/y) but weighed by car loans (-1.6% m/m, -4.8% q/q, -19.2% y/y) and shares financing (-1.4% m/m, -8.9% q/q, -15.2% y/y). Housing loans may remain lethargic as property prices are expected to lose another 15-20% this year while SIBOR rallies. Our house projects a slowdown in loan growth in 2015 to average 9% for full year. Deposit growth picked up 0.6% m/m (+1.9% q/q, +2.4% y/y) in December, an improvement from November’s +0.3% m/m but slow nonetheless. System LDR and SGD-LDR eased by 71bps and 26bps respectively to ~110% and 86%. We expect the surprise MAS reduction in SGD NEER, along with the consequent and anticipated (buoyed by US rate hike) boost to SIBOR, to benefit banks NIMs. DBS remains our sector top pick (Buy, TP $23.50), best positioned with lowest SGD LDR ratio. UOB is similarly rated Buy with TP of $23.18 but OCBC is rated Hold with TP of $10.40 for execution risks of the Wing Hang Bank M&A.