Why housing loans will stay strong in 2013

Previously approved mortgages remain high, for one.

Looking at the medium term, DBS Vickers also said that "natural demand" still exists from homebuyers despite the slew of new property cooling measures. On another note, the research firm also dismissed concerns that the new financing restrictions for motor vehicles will affect banks, suggesting that the banking sector is now tracking stable trends on most loan fronts.

Here's the full report on Singapore banks from DBS Vickers:

Stable trends. Feb 12 DBU and ACU loan growth remained stable at 15% y-o-y, equally driven by consumer and business loans. M-o-m momentum eased to 1.2% (Jan 13: 3.0%). DBU loans are still going strong at 19.6% y-o-y, driven more by business loans at 22.7% y-o-y vs consumer loans which were stable at 15.4% y-o-y. Housing loans have stablised at 16% y-o-y (a stable trend since Nov 12).

8% loan growth forecasted for 2013 still largely driven by business loans. We expect growth from non-S$ loans to be stronger. Given the competitive environment within Singapore, it is crucial that banks start to grow quicker outside their home ground.

Housing loans to remain fairly strong; minimal impact from vehicle financing restrictions. We still expect housing loans to remain fairly strong in 2013 because of previously approved mortgages; forecasting an 8% growth in mortgages for 2013, half of that achieved in 2012. We believe there is still natural demand for new homebuyers which would support medium term growth. Based on the Jan 13 property measures, LTV for borrowers without housing loans remain at 60%. The recently introduced measures by MAS on financing restrictions for motor vehicles (wef 26 Feb) should not have a major impact to the banks. Car loans only comprise 2.4% of total DBU loans, and have been contracting since Jan 13.

Deposit growth picking up but loan-to-deposit ratio at an all-time high. Deposit growth is picking up; at 9.7% yo-y in Feb 13 vs an average of 7% in the past 10 months with a trough point at 5.5%. Growth is well balanced between CASA (+9.8%) and fixed deposits (+9.5%). System loan-to-deposit ratio continue to rise to 96%, the highest ever achieved. Based on Dec 12 financials from the banks, the loan-to-deposit ratios group-wide are as follows: DBS: 86.7%, UOB: 84.0%, OCBC: 86.4%. In S$ terms, loan-todeposit ratios are as follows: DBS: 69.1%, UOB: 86.1%, OCBC: 85.4%.

Prefer OCBC over UOB. OCBC remains a BUY and our preferred pick as we believe opportunities for cross-selling and hence fee income enhancement is greater from its Bank of Singapore and Great Eastern platforms. UOB remains a HOLD as we see limited upside given the more challenging earnings growth momentum ahead. Active regionalisation efforts would be an added catalyst to Singapore banks while waiting for an eventual rate hike scenario.