Interest rates and loans are still expanding, spelling good news for local banks, writes PhillipCapital Research analyst Glenn Thum.
“We remain positive on banks. Bank dividend yields are attractive at 5% with upside surprise due to excess capital ratios. Stable economic conditions and rising interest rates remain tailwinds for the banking sector,” says Thum.
In an Oct 12 note, Thum is maintaining “overweight” on Singapore's banks, with “buy” calls on all three players. Thum has a target price of $41.60 on DBS Group Holdings, $14.22 on Oversea-Chinese Banking Corporation (OCBC) and $35.70 on United Overseas Bank (UOB).
SGX is another beneficiary of higher interest rates, writes Thum. He has a “buy” call out on the bourse with a target price of $11.71.
Interest rates continued to increase in September, says Thum. “The three-month Singapore Overnight Rate Average (3M-SORA) was up 42 basis points (bps) m-o-m to 2.31%, while the three-month Singapore Interbank Offered Rate (3M-SIBOR) was up 32bps m-o-m to 2.85%. It is the highest interest rates have been in more than a decade. The 3Q2022 3M-SORA is up 30bps q-o-q to 2.31% and has spiked by a massive 218bps y-o-y.”
Overall loans to Singapore residents — which captures lending in all currencies to residents in Singapore — rose by 6.7% y-o-y in August to $843 billion, tracking Thum’s estimate of mid-single digit growth for 2022 as economies in Asean begin to recover from the pandemic lockdowns and borders start to reopen.
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Business loans grew by 8.2% y-o-y in August, as business loans grew by 0.8% for the month.
Loans to the building and construction segment, the single largest business segment, grew 5.1% y-o-y to $172.8 billion, while loans to the manufacturing segment grew 12.5% y-o-y in August to $27.5 billion.
Consumer loans were up 4.3% y-o-y in August to $315.8 billion, aided by strong loan demand in the housing segment.
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Housing loans, which make up about 70% of consumer lending, grew 5.3% y-o-y in August to $221.0 billion for the month. Total deposits and balances — which capture deposits in all currencies to nonbank customers — grew by 11.8% y-o-y in August to $1,723 billion.
The Current Account and Savings Account (CASA) proportion remained stable, writes Thum, at 22.2% of total deposits or $383.2 billion.
Hong Kong growth dips
Meanwhile, Hong Kong’s domestic loans growth declined 0.97% y-o-y and 0.57% m-o-m in August. The y-o-y decline in loan growth for August was higher than the decline of 0.08% in July, while the m-o-m loans growth decline of 0.57% was 15bps higher than July’s loans growth decline of 0.42%.
Preliminary securities daily average value (SDAV) for September dipped 7% y-o-y to $1,149 million, as market sentiment remained subdued due to macroeconomic factors. The volatility index (VIX) averaged 27.3 in September, up from 22.2 in the previous month, and the derivatives daily average value (DDAV) rose 2% y-o-y to 1.05 million, up from 0.92 million in August.
The top five equity index futures turnover saw a dip of 3.9% y-o-y in September to 14.87 million contracts, mainly due to the lower trading volumes of its FTSE China A50 Index Futures and Nikkei 225 Index Futures. Notably, the Nikkei 225 Index Futures grew 43.1% m-o-m to 1.51 million and the FTSE China A50 Index Futures dipped 2.9% m-o-m to 7.77 million. 3QFY2022 DDAV is up 2.4% on y-o-y basis.
As at 1.26pm, shares in DBS are trading 1 cent higher, or 0.03% up, at $33.32; while shares in OCBC Bank are trading 5 cents higher, or 0.42% up, at $11.82; and shares in UOB are trading 6 cents higher, or 0.23% up, at $26.38.
