UOB faces the most deposit pressure, warns analyst

Blame it on UOB's high dependence on time deposit funding.

Here's more from CIMB:

We believe that the reason for muted system deposit growth is the low interest rate environment. Because of th sustained low interest rates, depositors have  turned yield-hungry, channelling savings into property (shoebox units), REITs, bonds, preference shares and perpetual bonds.

There is still excess S$ liquidity at the moment but that gap is closing. S$-LDR has gone up to 73.6% from 66.1% at the start of 2010. If system deposit growth stays muted due to sustained leakage into alternative yield instruments, the local banks might be forced to meet the deposit rate competition head-on as liquidity tightens.

Local banks’ S$ loans-to-deposit ratio (LDR) has been on the uptrend in recent quarters. In 2Q12, UOB had the highest LDR among local peers, even higher than that of the  system. In our view, compared to peers, UOB faces the most pressure to raise S$-deposit rates if system liquidity tightens.

In fact, UOB was offering relatively attractive promotional rates in August and September. We think it could see above-peers margin compression going forward as its funding costs edge up. Also, in our estimation, UOB has the highest dependence on time deposit funding among the three.