SG banks sustain momentum with double-digit loan growth

DBU loans grew 29.7% yoy while loan-to-deposit ratio reached an all-time high of 83.7%.

For August 2011, business loans accelerated ahead of consumer loans at 39.2% y-o-y and 11.2% q-o-q. Meanwhile, housing loans growth remained fairly stable at 18.9% y-o-y, 4.4% q-o-q and 1.7% m-o-m. YTD loan growth stood at 21.8%.

In a statement, DBS Vickers said that while DBU loan statistics “may not truly reflect loan growth,” it serves as an indication of loan momentum with the increasing looser classification between DBU and ACU.

The analyst said that while banks have indicated that loan pipeline remains healthy for the rest of the year, moderation in growth is expected in 2H11 after the surge in the first quarter. Cumulative loan growth across the three Singapore banks is expected to be at 18%.

DBS Vickers cautioned, however, that if a recession does hit, loan growth could taper off. In 2009, when GDP contracted by 1.3%, loans grew by only 3.4%.

Internal analysis from DBS concluded that every 1ppt decline in loan growth leads to a 1-2% decline in earnings.

With total deposits are chugging along at 13.8% y-o-y, 2.7% q-o-q and 1.0% m-o-m, YTD deposit growth of 8.3% remains largely driven by low cost deposits, which collectively comprise 58% of total deposit base.

Separately, with loan growth far exceeding deposit growth, loan-to-deposit ratio inched up further to 83.7%, an all-time high level since May-05.

According to the analyst, while Singapore banks are stronger now compared to 2008 in terms of asset quality and capital, market jitters will continue weighing down share price performance amid recessionary concerns.