Weak corporate credit poses risks.
The MAS monetary statistics showed that domestic retail and housing loans were again the key driver of system loan growth (+0.7% m/m) in November.
Barclays Research sees headwinds to FY13E loan growth if corporate credit remains weak and mortgage demand slows.
Here's from Barclays:
Steady underlying loan and deposit growth: Both system (DBU+ACU) loan growth and deposit growth was steady at 0.7% m/m in November in SGD terms, resulting in stable system loan to deposit ratio at 94.6% (same as in Oct 2012).
System (DBU+ACU) loan growth recorded high single digit ytd growth of 8.8% in SGD terms. After adjusting for a 6.4% ytd appreciation of the SGD against the USD, underlying loan growth was strong at 11.4% ytd. System deposit balance rose 5.8% ytd, with strongest growth in DBU fixed deposits as deposit competition intensified.
System loan and deposit growth
Loan growth has been on a declining trend since 2H11, largely led by a slowdown in corporate loans, especially in general commerce, transport, storage and communications. GDP rose by 1.2% y/y in 2012, a slowdown from 4.9% in 2011. Our economics team believes that weak growth in the advanced economies will weigh on Singapore’s open economy heavily, exacerbated by supply-side factors such as rising costs and industry restructuring. Barring a worse-than-expected outcome for the US fiscal cliff discussions, we think Singapore will manage 2.1% growth next year, with activity recovering more quickly from 2Q onwards.
DBU LDR eased slightly to 93.9% (vs 94.9% in Oct) due to strong DBU deposit growth of 1.6% m/m, which outpaced loan growth of 0.5% m/m. ACU LDR rose to 102.3% (from 102.9% in Oct), driven by a mild decline in ACU deposits (-0.5%m/m).
Loan growth was again driven by DBU retail and housing loans: Retail loans growth remains strong at 1.3%m/m, outpacing corporate loan growth, which only increased by 0.4% m/m. Housing loans continued its strong growth momentum at 1.5% m/m and 14.3% ytd. However, we see rising risk of further property cooling measures as the government clamps down further on rising property prices. We believe that Singapore banks will meet their guidance of high single-digit loan growth for FY12E, but see headwinds to FY13E loan growth if corporate credit remains weak and mortgage demand slows.
The Singapore banks have a strong risk management track record, are well funded and are the best capitalized in our coverage universe. However, we see ongoing pressure to net interest income as loan volumes remain weak on slow corporate loan demand and lower margins driven by fierce loan and deposit competition. Singapore banks' abundant liquidity will likely become an increasing drag on margins if loan to deposit ratio declines.
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