Singapore still one of most resilient Asian markets to liquidity outflows

Despite tighening system liquidity, says Barclays.

The Barclays pronouncement came as the monetary statistics of the Monetary Authority of Singapore for June showed moderating system loan growth, especially in the general commerce (trade finance) and manufacturing segment.

"The system loans to deposits ratio was steady at 100%. Singapore banks are defensive to potential liquidity tightening in Emerging Markets in Asia and are key beneficiaries from the rising interest rates in the medium term," Barclays said.

"However, we see a lack of near-term positive catalysts as strong loan growth will likely be offset by some margin pressure," it added.

Barclays also noted how system loan growth in June slowed to 0.4% m/m (9.6% ytd June) and 0.2% m/m on a constant currency basis, taking into account the mild USD appreciation against the SGD in June.

In particular, general commerce (trade finance) and manufacturing loans softened to 1.4% and 0.3% m/m in June vs 23% and 19% ytd-June.

"We believe the slowdown in June is partly related to 1) China’s liquidity tightness and as regulators clamped down on RMB/USD currency arbitrage trade lending and 2) concerns over potential liquidity outflows from the ASEAN region in anticipation of US Fed tapering," said Barclays.

"Relative to the Hong Kong banks where Mainland Chinese bank’s subsidiaries are very active, the Singapore banks are more conservative on China-related trade finance business, in our view," it added.

But housing loan growth was steady at 0.8% m/m and 5.2% ytd. In late June, the MAS fine tuned rules on housing loan-to-value limits to prevent circumvention of tighter LTV limit on second and subsequent housing loans and introduced a 60% Total Debt Servicing Ratio (TDSR) cap, to further strengthen credit underwriting standards, the research firm acknowledged.

The loans to deposits ratio was stable at 100% with loans and deposits growth 0.3-0.4% m/m.

"Despite the elevated tightness in system liquidity relative to history, we believe Singapore is still one of the most resilient markets in EM Asia to liquidity outflows," Barclays concluded.