Deposit growth in Singapore banks rebound in June

After a contraction in April and May.

The June monetary statistics from the Monetary Authority of Singapore (MAS) show a rebound in deposits growth after a contraction in April and May.

According to a research note from Barclays, system deposits were up by 0.8% m/m in June (May: -0.3% m/m), mainly led by ACU deposits, up 2.6% m/m in US$ terms. DBU deposits contracted for the third consecutive month, and were down 0.3% m/m.

System loans continued to grow, up 0.8% m/m, driven by ACU loans (+2.3% m/m in USD terms).

The growth was led by both ACU corporate loans (+1.7% m/m) and retail loans (+2.7% m/m).

Here's more from Barclays:

DBU loans were flat m/m as the growth in retail loans (+0.7% m/m) was offset by total corporate loans (-0.4% m/m), in the general commerce and business (-2.6% m/m) and manufacturing sectors (-2.3% m/m).

System LDR remained flat at 110.6% in June (May: 110.6%) but is still a record high since 1998.

We expect funding costs will increase due to competition for deposits.

Moreover, with the implementation of the Basel III liquidity rules (including the Liquidity Coverage Ratio and the Net Stable Funding Ratio), we believe banks will increasingly focus on deposit funding both in S$ and in foreign currency.

The three local banks have said that currently they are comfortably placed to meet the rules.

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DBS (OW) remains our top pick among the Singapore banks given its strong deposit franchise and positive leverage to rising rates, followed by UOB (OW) which has strong fee income generation capability and a solid risk management track record.

We rate OCBC UW as we believe it will have to raise capital to fund the acquisition of Wing Hang Bank.