Amala Balakrishner  Published on Fri, Jul 02, 2021 

RHB Group Research is maintaining its “overweight” stance on the banking sector amid expectations that Singapore banks’ robust performance in 1H2021 will extend into the second half of the year.

“The recent movement restrictions’ impact should be moderate,” the analysts elaborate in a July 2 note.

The team’s stance follows the Monetary Authority of Singapore’s (MAS) recent announcement that the republic’s 2021 gross domestic product (GDP) growth range should exceed the upper end of its 4% to 6% forecast range.

While the recent tightening of domestic restrictions and border controls are expected to set Singapore’s economy back by 8% in the near-term, RHB’s analysts say a recovery is still possible in 2H2021.

This will be “supported by strengthening global demand and more progress in Singapore’s vaccination programme,” the analysts say.

Against this backdrop, they observe that the banks are on track to lowering their credit costs this year.

Loans requiring relief assistance are predicted to tick up from levels 1-2% of gross loans in March 2021 due to the recent movement restrictions, the analysts add.

To this end, core fee income – a key growth driver for banks in 1Q2021 – is deemed to remain as an important driver in 2H2021.

“The low interest rate environment would continue to drive demand for investment products while transaction service fees would rise on the expected pick-up in trade-related activities,” RHB’s analysts point out.

Card fees are also slated to drive growth thanks to the rapid adoption of e-payments and a surge in household spending.

Given these factors, the analysts are expecting a 14.7% y-o-y lift in core fee income in FY2021.

Singapore’s bank lending had edged up by 0.2% in May on the back of a pick up in loans to businesses, MAS announced on June 30.

Loans through the domestic banking unit – which captures lending in all currencies but mainly reflects Singapore-dollar lending – were up for the seventh consecutive month to $693.72 billion in May.

Business loans ticked up by 0.2% on a m-o-m basis to $428.48 billion in May, after logging a flattish performance in the previous month.

Loans to building and construction – which make up the single largest business segment – inched up by 0.1% to $152.37 billion. Loans disbursed for manufacturing meanwhile rose by 5.1% to $28.26 billion, reversing the 3.4% decline registered in the previous month.

Consumer loans maintained its growth streak with a 0.3% edge up to $265.25 billion.

Overall, Singapore’s bank lending was up by 1.2% on a y-o-y basis, faster that the 0.4% rise in April.