Yahoo Finance T-bills tide to turn in May, says DBS's Piyush Gupta
DBS's Singapore dollar savings account deposits were down 14.7% h-o-h and 11.4% y-o-y to $137.8 billion as at Dec 31, 2022.
DBS Bank’s D05 chief executive officer Piyush Gupta thinks demand for Singapore’s Treasury bills (T-bills) will start declining in May, after a late-2022 rush into the six- and 12-month government securities impacted the bank’s customer deposits.
“The T-bills issued by the government at very attractive rates — that factor was not taken into account when we were doing modelling earlier. Obviously, a lot of money has flowed out of the system into the T-bills,” says Gupta at the release of the bank’s FY2022 ended December results on Feb 13.
DBS saw overall outflows in CASA (current account savings account) in 2HFY2022 ended December. Singapore dollar savings account deposits were down 14.7% h-o-h and 11.4% y-o-y to $137.8 billion as at Dec 31, 2022.
Singapore dollar current account deposits, meanwhile, were down 5.48% h-o-h and 10.4% y-o-y to $46.2 billion as at Dec 31, 2022.
Singapore dollar fixed deposits, meanwhile, more than doubled h-o-h (112.3%) and y-o-y (130.2%) to $29.0 billion as at Dec 31, 2022.
For 4QFY2022, DBS saw deposits rise 2% q-o-q and 7% y-o-y in constant-currency terms to $527 billion, as fixed deposit growth more than offset CASA outflows of $60 billion. Fixed deposits grew 80%, or $93 billion, during the year. The majority of the growth was in foreign currencies led by US dollars.
From now till May, however, DBS could see further outflows in customer deposits. “For the first quarter; three, four months [of 2023], you will see some impact on that,” says Gupta.
As higher interest rates put a squeeze on equities, retail investors and money-market funds have turned to T-bills, which sport a short tenor compared to bonds.
Yields awarded on six-month bills jumped to 4.19% in October 2022, from just over 2% in June 2022. This has since moderated; the cut-off yield for the latest six-month T-bill auction on Feb 2 was 3.88%.
Amid speculation that rates were close to peaking, Singapore’s sale of 12-month T-bills drew record demand in January, with the sale of $3.6 billion of securities due January 2024 drawing total bids of $10.5 billion. They were sold at an average yield of 3.53%, the highest since 1992, and up from 3.28% at the last sale in October 2022. The next 12-month auction is scheduled for April.
The latest US Fed decision on Feb 1 brought the Funds Rate to 4.75% from 4.50% previously.
While Gupta believes interest rate increases will moderate, rate cuts will remain elusive this year. “My own view is I think we’ll see a couple more rate hikes. I think the Fed will get to 5.0%, 5.25%, and I don't see them cutting rates this year.”
DBS posted record high net profit of $8.19 billion for FY2022, up 20% y-o-y, with 4QFY2022 net profit surging 69% y-o-y to $2.34 billion, marking a quarterly record.
Net interest income grew 40% to a record $10.7 billion. Net interest margin (NIM), meanwhile, increased 48 bps to 2.11% from higher interest rates.
With rate increases likely to moderate ahead, DBS flags potential downside risks of 5-7 bps to its peak group NIM guidance of 2.25% in FY2023.
“The record return on equity of 17% for the fourth quarter and 15% for the full year reflect the benefit of higher interest rates as well as significant structural gains from our decade-long transformation initiatives,” says Gupta.
“Our business pipelines are healthy and asset quality robust,” he adds. “We expect confidence to return to markets in the coming year as interest rate increases ease and China reopens.”
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