🌈October is shaping up to be another good month for the Singapore banks
🥉In particular, $DBS (D05.SG)$ is the third best index performer on the local bourse, gaining 4.4% month to date versus the benchmark’s +2.1%
📈The stock had gone up as much as 7% this month before some profit-taking erased 2.5% over the past weekWill sentiment around the sector remain rosy leading up to their third quarter results to be announced in early November?
✍️Macquarie Research (MQ) published their view on the sector on the back of the August stats in deposit and loans
Key points
– Total loans were down 0.6% month-on-month (MoM), +4.7% year-on-year (YoY). Deposits declined 0.5% MoM (+8.6% YoY), led by fixed deposits (-1.0% MoM)
– The system loan/deposit ratio decreased 0.1% MoM to 65.7%, while the current and savings account (CASA) ratio rose 0.3ppt MoM to 48.1%.
– MQ is cautious on the sector on lower rates. Their pecking order is driven by dividend visibility: DBS (Neutral) > OCBC (Neutral) > UOB (Underperform).
Observations from the data
– Business loans declined 1.2% MoM, Business loans declined 1.2% MoM, for a second consecutive month. Transport loans decreased 4.2% MoM (+11.0% YoY) and general commerce loans decreased 2.2% MoM (+9.5% YoY). Financial institutions loans declined 0.8% MoM (+2.5% YoY) and building and construction loans declined 0.7% MoM (+2.7% YoY). On a YoY basis, business loans were up 4.1%
– Mortgage loans increased 0.4% MoM (+4.1% YoY). New private residential sales were 2,142 units in Aug-25, the highest level for the month since records began in 2007, up 127.9% MoM (+915.2% YoY). The surge was driven by the front-loading of 5 new private residential launches ahead of the Hungry Ghost Festival, lower mortgage rates and Singapore’s better full-year prospects. Credit-card loans increased 1.3% MoM (+8.6% YoY)
– Deposits declined 0.5% MoM (+8.6% YoY), after a prior month increase, led by fixed deposits, which declined 1.0% MoM. Demand deposits fell 0.5% MoM, while savings deposits rose 1.3% MoM. The low-cost CASA deposit ratio stood at 48.1%, up 0.3% MoM. The banking sector loan-deposit ratio declined 0.1% MoM (-2.5ppt YoY) to 65.7%, reaching a low last seen in Oct-07 (+8.6% YoY), after a prior month increase, led by fixed deposits, which declined 1.0% MoM. Demand deposits fell 0.5% MoM, while savings deposits rose 1.3% MoM. The low-cost CASA deposit ratio stood at 48.1%, up 0.3% MoM. The banking sector loan-deposit ratio declined 0.1% MoM (-2.5ppt YoY) to 65.7%, reaching a low last seen in Oct-07
– MAS maintained the SGNEER slope at its recent July meeting, after easing monetary policy twice earlier this year, citing strong first half economic performance despite US tariffs. MQ’s models now reflect a 1.60% SORA (4-quarter average) and a 1.40% terminal rate by 2027, with 2 x 25bps Fed cuts factored in. Singapore's Aug-25 core CPI fell to 0.3%, the lowest since February 2021, with MAS keeping its 2025 core inflation forecast at 0.5-1.5%. The drop in core inflation was largely due to slower services inflation at 0.4%, driven by declining holiday expenses and airfares and lower electricity/gas costs
Falling rates, elevated valuations
With declining SORA-3monthj rates and limited loan growth, MQ found limited resistance to their bearish view of the Singaporean banks in recent investor meetings. DBS is their relative pick on dividend sustainability with some funds expecting the valuation gap to widen versus UOB and OCBC on better capital management at the former
$DBS(D05.SI)$ : Neutral rating; 12-month target price of $44.00 based on a Price-to-Book stock methodology.
$OCBC Bank(O39.SI)$ : Outperform rating; 12-month target price of $15.08 based on a Price-to-Book stock methodology.
$UOB(U11.SI)$ : Neutral rating; 12-month target price of $30.17 based on a Gordon Growth Model stock methodology.
Note:
Macquarie Research is independent from the Warrants business, what the Macquarie Warrants desks quote from Macquarie Research may not reflect the complete analysis of Macquarie Research on the relevant company over time.
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Macquarie has trending call and put warrants on tight spreads and high liquidity tracking the three banks. Investors keen to capitalise on the volatility of the Singapore bank shares may wish to consider using them to do so.
The warrants are priced between 3.8 cents to 7.4 cents (as of 9AM this morning) and will move approximately 6.5 to 9 times more than their respective bank shares.
Interested investors can use the Exposure Simulator tool to estimate the warrant price performance of any of the warrants based on your target exit levels in the stocks.
Trending DBS call $DBS MB eCW260330(8Y5W.SI)$ https://warrants.com.sg/tools/exposuresimulator/8Y5W
Trending DBS put $DBS MB ePW260316(NATW.SI)$ https://warrants.com.sg/tools/exposuresimulator/NATW
Trending OCBC call $WYRW
https://warrants.com.sg/tools/exposuresimulator/WYRW
Trending OCBC put $WQPW
https://warrants.com.sg/tools/exposuresimulator/WQPW
Trending UOB call $9MRW
https://warrants.com.sg/tools/exposuresimulator/9MRW
Trending UOB put $ZYPW
https://warrants.com.sg/tools/exposuresimulator/ZYPWs/highlight/todayhighlight/7744
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