To The Moon

Bloomberg reported that DBS recently loaned $30 billion to the Monetary Authority of Singapore (MAS) because it could not find enough opportunities to put its money to work. It is likely that UOB and OCBC have done the same.

This is truly bad news for Singapore banks.

Too much deposit??

It seems clear that Singapore banks are receiving more deposits than they can immediately deploy to suitable risk-adjusted asset opportunities. DBS' total deposits climbed 31% to $529 billion between December 2019 and March 2023. Fitch Ratings also reported that Singapore's banks chalked up the largest "excess" since 2020 as deposit growth continues to outstrip loan growth.

Singapore has been a beneficiary of the global shift of wealth, as wealthy individuals from Asia and the US have been moving their money to the city-state. As a result, Singapore banks are flush with deposits, but they have few options to deploy this money due to the tepid lending environment. This could lead to a compression of net interest margins (NIMs) in the coming quarters, which would put further downward pressure on share prices.

I am very sure that it is not part of DBS’s business core strategy to actively gather customer deposits only to park them at a central bank.

Mortgage loan likely to trend down

Good news for SG home owners: SG mortgage rates will trend down fairly quickly despite rhetoric that Fed rates will stay high for longer.

Why?? Singapore banks are currently offering competitive fixed-rate mortgages with a 2–3-year lock-in of 3.5%, even though the 3-month Singapore Overnight Rate Average (SORA) is hovering at 3.6%. All of Singapore's banks and Qualifying Full Banks (QFBs) are now competing to gain market share in the mortgage space, as mortgages are generally perceived as very low-risk assets. It is very likely mortgage rate will continue to trend downward and move closer to 3% due to all these competitions, resulting in weaker NIM.

Conclusion: Revenue and net profit growth will be soft

Year-to-date, both DBS and UOB's share prices are down 8%, while OCBC's share price is up 1%. In terms of valuation, OCBC and UOB are trading at -1 standard deviation (SD), while DBS is trading at the average SD.

Fundamentally, the lending environment will face tremendous headwinds due to the tepid growth outlook. Additionally, the excess liquidity will only exacerbate the compression of NIMs. The liquidity flush and sharp decline in loan-to-deposit ratios (LDRs) is a cause for concern, and I advise everyone to be mindful of this if you are considering investing.

@MillionaireTiger @Daily_Discussion @TigerStars