May-11: Stunning loan growth momentum; business loans driven
Loans grew at its strongest rate in May-11 at 3.5% mo-m, 8.7% q-o-q and 24.2% y-o-y. Business loans expanded 4.3% m-o-m, 12.2% q-o-q and 27.5% y-oy, the highest growth rates achieved since end-2008; clear cycle of business loan growth from capacity expansion.
YTD loan growth stood at 12.6%, driven by business loans (+17.5% YTD). Consumer loans chugged along by 7% YTD while housing loans grew by 6.5%. Although gradually moderating, we believe that there is still sufficient mortgage loan draw downs to ensure mortgage loans remain fairly strong for at least another next 4-6 quarters although we believe the momentum achieved in 2010 would not be repeated (mortgage loan growth in 2010 was 23%).
Deposits grew strongly by 13% y-o-y but only at 0.5% m-o-m, still driven by current and savings deposits, which collectively comprise 58% of total deposit base.
Loan-to-deposit ratio further inched up to 79%. While on the higher end of historical trends, we view that liquidity remains ample and banks will continue to strive for deposit growth.
Loans growth remains the variable for earnings surprise for the Singapore banks. Based on our estimates, every 1% increase in loans growth (holding other variables constant), earnings could increase by 2-3%. There is a significant upside to our loan growth assumption for 2011, which is currently at 13%.
We reiterate our positive stance for the Singapore banks and it remains our top picks among our ASEAN banks coverage. Maintain Buys on OCBC (TP S$11.30) and UOB (TP S$21.70).
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