Singapore banks' loan growth outstrips deposit growth

Is this a cause for worry?

According to DMG Research, September deposits declined by 0.3% m-o-m, but rose 6.5% y-o-y (August: flat m-o-m; +6.4% y-o-y).

With loan growth still outpacing deposit growth, the loan-to-deposit ratio (LDR) surged further to hit a new high of 101.8%, as at end-September, compared with 100.5% at end-August.

Here's more from DMG Research:

We shall await the upcoming 3Q13 results to see if banks are starting to face funding cost pressures due to the rising LDR.

Investment case. Despite a pickup in September’s loans growth, we do not foresee the growth momentum to continue into 4Q13.

This will partly be due to seasonality and the property market cooling measures taking effect. We forecast slower loans growth for banks in the quarters ahead, and maintain our NEUTRAL call on the sector. We like DBS (DBS SP, BUY, FV: SDG18.70), given its relatively stronger earnings growth profile, while its valuation remains at a discount to that of its peers.

DBS is also less vulnerable to policy changes that affect the property market, given its relatively smaller exposure to this segment. Elsewhere, we think UOB (UOB SP, BUY, FV: SGD24.40) is well-positioned to benefit from the rise of Asean as a new growth haven in the longer-term.