Bank credit concerns elevated further with May loans data

DBU and ACU LDRs  rose by 90.2% and 104.0% respectively but here's why it's not a major red flag for now.

System loans climbed 2.7% mom in May, reversing from April’s -0.3%. ACU loans rose 3.3% mom, DBU loans was up 2.2% mom.

New loans were predominantly business loans, accounting for 72.2% of May’s loans. Property loans added another 23.7%. DBU loan growth slows to 22.5% yoy.

Overall deposit growth remained challenging with ACU deposits down 1.2% mom and DBU deposits adding a mere 0.7% mom, leading to higher DBU and ACU LDRs of 90.2% and 104.0% respectively.

What CIMB thinks?

5M12 data is broadly in line with our 2012 loan-growth estimate of 12-15%, with DBU loans +5.8% YTD. Of note
is tighter system LDR. US$ liquidity remains tight, giving cause to believe in room for loan pricing upside.

Tighter DBU LDR reflects slower deposit growth, no surprise since interest rates are next to zero.

S$-liquidity is still plentiful. Credit quality shows minor signs of deterioration, with credit-card bad debt and charge-off rates rising in May; not major red flags for now.