Chart of the Day: Look at how fiercely loan growth is outpacing deposit growth in Singapore banks

LDR has crept up worryingly.

Singapore banks may be dealing with one of the biggest problems since 2003 as loan growth stomps on deposit growth in May.

According to CIMB, MAS banking data for May showed healthy YTD DBU loan growth of 4.1% (Apr: 2.9%), broadly in line with the banks’ guidance of high single-digit to low-teens loan growth for the full year. 

Here's more from CIMB:

The 1.1% mom loan growth was led by business loans (+1.6% mom, +6.3% YTD), building and construction loans (+1.1% mom, +3.1% YTD) and mortgages (+0.7% mom, +2.5% YTD). Meanwhile, consumer loans shrank 0.2% mom and 0.2% YTD as demand for car loans and share financing continue to fall.

Deposits shrank, LDRs crept up. A worrying trend that appeared in May is that DBU deposits shrank (-0.8% mom, -0.2% YTD), led by an outflow of fixed deposits. We have to go back to as far as Mar 03 (SARS) to find a yoy decline in system deposits.

As loan growth continues to outpace deposit growth, DBU LDR is up (May:111%, Apr:109%), so is S$ LDR (May:84%, Apr: 83%).

A shrinking deposit pool is worrying as banks will have to compete aggressivelyfor a shrinking pie, hiking up funding costs for all. The concern is accentuated with the new LCR requirements, especially for the foreign banks who need to offer attractive rates to compete.

If higher rates merely poached time deposits from the local banks, it would not be a worry. However, recent CASA packages suggest that the local banks are equally wary of CASA slippage.

We maintain our Overweight call on the sector as the banks seem to be able to pass out higher funding costs to loans.