PhillipCapital analyst Glenn Thum has maintained his “overweight” call on the Singapore banking sector and “buy” ratings on all three local banks.
Thum has also given target prices of $41.60, $35.70 and $14.42 to DBS, UOB, and OCBC respectively,
The analyst explains his positive view on the sector, saying that bank dividend yields are attractive at 5% with upside surprises due to excess capital ratios.
In addition, stable economic conditions and rising interest rates remain tailwinds for the banking sector, he says.
In August, bank interest rates continued to climb, hitting their highest levels in a decade. The three-month Singapore Overnight Rate Average (SORA) was up 25 basis points (bps) m-o-m to 2.72%, while the three-month Singapore Interbank Offered Rate (SIBOR) was up 51 bps m-o-m to 2.53%.
Thum also notes that the three-month SORA is 128 bps higher than its 2Q2022 average of 1.44% and has improved by 254 bps y-o-y.
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Similarly, the three-month SIBOR is 131 bps higher than its 2Q2022 average of 1.22% and has improved by 210 bps y-o-y.
In terms of loans, overall loans to Singapore residents – which captures lending in all currencies to residents in Singapore – rose by 6.3% y-o-y in July to $838 billion, with Thum saying that this is “tracking our 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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In July, business loans grew by 7.3% y-o-y, even though business loans dipped by 0.6% for the month. Loans to the building and construction segment - which is the single largest business segment - grew 6.3% y-o-y to $173.8 billion, while loans to the manufacturing segment grew 10.3% y-o-y in July to $27.6 billion.
Separately, consumer loans were up 4.6% y-o-y in July to $315.3 billion, aided by strong loan demand in the housing segment. Housing loans, which make up about 70% of consumer lending, grew 5.7% y-o-y in July to $220.5 billion for the month.
Meanwhile, total deposits and balances – which capture deposits in all currencies to non-bank customers – grew by 10.8% y-o-y in July to $1.69 trillion, with the Current Account and Savings Account (CASA) proportion remaining stable at 22.6% of total deposits, or $383.5 billion.
In addition to the banking sector, Thum notes that the Singapore Exchange (SGX) is another beneficiary of the higher interest rates.
However, in August, SGX’s preliminary securities daily average value (SDAV) fell 12% y-o-y to $1.09 billion on the back of subdued market sentiment due to the macroeconomic factors.
“The Volatility Index (VIX) averaged 22.2 in August, down from 25.0 in the previous month. The top five equity index futures turnover saw a dip of 4.2% y-o-y in August to 13.71 million contracts, mainly due to the lower trading volumes of its FTSE China A50 Index Futures and FTSE Taiwan Index Futures,” Thum says.
“Notably, the MSCI Singapore Index Futures grew 6.9% m-o-m to 1.21 million and the FTSE Taiwan Index Futures dipped 15.3% m-o-m to 1.21 million,” he adds.
As at 4.38pm, shares of DBS, UOB and OCBC were trading at $32.92, $27 and $12.01 respectively. Shares in SGX were trading at $9.49.
