Why Singapore banks suffered a mild deposit contraction in October

Due to SGD appreciation and QE.

Barclays said the October monetary statistics from the Monetary Authority of Singapore showed a mild deposit contraction of 0.1% m/m, led by a -0.4% m/m contraction of ACU deposits in SGD terms as SGD appreciated 1.4% against USD in October and deposit growth likely slowed post the delay in the tapering off of US quantitative easing in September, according to Barclays Research.

Loans grew by 1% m/m, resulting in system loan/deposit ratio to rise to 101%, another record high. Despite tighter system liquidity, we believe the local Singapore banks are defensive to potential liquidity outflows from Asian Emerging Markets and are key beneficiaries of rising interest rates in the medium term. However, we see a lack of near-term positive catalysts.

System loans in October rose 1.0% m/m (14.1% ytd), led by DBU +1.4% m/m. ACU loans rose 0.5% m/m in SGD terms (and 1.8% m/m in USD terms). Loan growth was led by other retail loans (excl. housing loans) which climbed 4.0% m/m.

System deposits growth contracted by 0.1% m/m led by a 0.4% m/m contraction in ACU deposits (+1.1% m/m in US$ terms) as SGD appreciated against the USD by 1.4% and we believe the local banks were less competitive for USD deposit funding after the delay in QE tapering in September. DBU deposits increased by only 0.2% m/m, after a contraction of 0.3% m/m in September.

Housing loans growth remained muted at 0.7% m/m (same as in September) and 8.5% ytd, after MAS’s fine tuning of housing loan-to-value limits in late June and the introduction of a 60% Total Debt Servicing Ratio (TDSR) cap, in a bid to further strengthen credit underwriting standards.

The system loan-to-deposit ratio further inched up to 101% (from 100% in September). Though the delayed Fed tapering may alleviate some concerns over potential liquidity outflow from ASEAN markets in the short-term, it remains a risk to system liquidity in the medium- to long-term. We believe Singapore is relatively defensive as Asia’s key funding centre and is still one of the most resilient markets in EM Asia to liquidity outflows.