Singapore banks' loan to deposit ratio at its highest level since 1999

Check out what led LDR to rise to 96.6% in January.

According to Barclays Research, the MAS monthly monetary statistics showed a rebound in foreign currency corporate loan growth after a slow 2H12, driving system loans to rise by 3% m/m in January.

Loan to deposit ratio continued to rise to 96.6%, the highest level since 1999, as deposit growth lagged loan growth. Therefore, Barclays sees deposit competition remaining fierce and placing pressure on margin.

While January was a strong month, Barclays expects headwinds to FY13 loan growth both on corporate and retail loans (especially housing).

Here's more from Barclays:

Strong loan growth and rising loan to deposit ratio: System (DBU +ACU) loan growth (+3.0% m/m) outpaced deposit growth (+2% m/m) and led to system loan to deposit ratio rising to 96.6% in January 2013, the highest level since 1999. ACU LDR gained 2.3% m/m to 106.2% while DBU LDR stood flat at 94.6%.

ACU loan growth of 4.6% m/m in SG$ terms was boosted by a 1.4% depreciation of SGD against USD in January, but even in US$ terms, ACU loans rose by 3% m/m, faster than DBU loans which rose 1.8% m/m.

Because of the continued rise in loan to deposit ratio, we believe banks will continue to focus on attracting deposit funding resulting in upward pressure on funding costs. All three local Singapore banks recently guided for margins to trend lower over the next few quarters. Deposit growth in January was driven by both CASA and fixed deposits.    

Corporate loans drive growth: In the month of January, system corporate lending was strong, up 3.6% m/m driven by foreign currency loans to the general commerce and manufacturing sectors, recovering from weak growth in 2H12.

Housing loan growth was still solid up +1.4% m/m despite the MAS’s residential property cooling measures. The MAS introduced the 7th round of property cooling measures on 11 January 2013, which we believe will affect demand for mortgages more evidently from 2Q13 onwards.

For FY13E, we forecast mortgage growth to slow to 8% (from 16% in 2012) and overall system growth of 7% (vs 10% in 2012).

FY13E outlook: The 4Q12 results season reflected a focus on fee, wealth and investment income to offset the negative impact from margin compression (down 5-8bps q/q).

We see no near-term significant positive catalysts for the sector and believe the key issues of deposit competition, margin pressure and headwinds to loan growth remain.

A key upside risk is if corporate lending picks up faster than expected, especially in intra-regional business flow. In this regard, we most prefer UOB due to its focus on regional ASEAN growth markets outside of Singapore.