Strategy Note /

Singapore Banking Monthly: Interest rates show slight uptick

  • December’s 3M-SOR up MoM, 3M-SIBOR remains flat

  • Hong Kong’s domestic loans growth increased 4.23% YoY in November

  • SGX’s 2H21 top five equity index futures turnover are up 3.5% YoY

Glenn Thum
Glenn Thum

Research Analyst

10 January 2022
Published byPhillipCapital

3M-SOR showed improvement in December, 3M-SIBOR remained flat

Interest rates were up slightly in December, 3M-SOR was up 12bps MoM to 0.37% while 3M-SIBOR remained flat MoM at 0.44%. 3M-SOR is 6bps higher than its 4Q21 average of 0.31% and has improved by 18bps YoY. 3M-SIBOR is flat against its 3Q21 average of 0.44% and has improved by 3bps YoY (Figure 1).

Hong Kong and Malaysia loans growth show improvement in November

Hong Kong’s domestic loans growth increased to 4.23% YoY but fell marginally by 0.02% MoM in November. It recorded the highest positive loans growth YoY in November since July 2021.

Malaysia’s domestic loans growth saw an increase of 4.30% YoY in November and rose 0.85% MoM in November. The increase YoY in November was the highest recorded since September 2020.

Volatility fell as Singapore enters the Stabilisation Phase

Preliminary SDAV for December fell 25% YoY to $834mn (Figure 6), as the COVID-19 situation stabilised in Singapore and community cases continue to fall. VIX averaged 20.9 in December, up slightly from 18.5 in the previous month.

The top five equity index futures turnover saw an increase of 7.9% YoY in December to 13.95mn contracts (Figure 8) mainly due to the higher trading volumes of its FTSE China A50 Index Futures and MSCI Singapore Index Futures.  Notably, the FTSE China A50 Index Futures increased 8.6% MoM to 8.2mn despite the introduction of HKEX’s MSCI China A50 Connect Index futures and the Nikkei 225 Index Futures increased 41.2% MoM to 1.4mn.

For 4Q21, the top five equity index futures turnover saw an increase of 16.2% YoY to a total of 40.3mn contracts (Figure 9). This was mainly due to an increase in trading volumes of its FTSE China A50 Index Futures and MSCI Singapore Index Futures.

Foreign exchange trading on the SGX fell 7% YoY to 2mn contracts in November. China’s economic rebound continued to spur strong institutional demand for risk management of the renminbi (RMB). Reflecting this, SGX’s USD/CNH Futures jumped 6% YoY to 920,559 contracts. Month-end open interest in this contract, the world’s most widely-traded international RMB futures, increased 10% YoY to US$101.3bn.

Investment Action

Maintain OVERWEIGHT. We remain positive on banks. Banks traded above 1.4x P/B over the last five years and are currently close to or below our P/B targets. Our price targets are supported by improving ROEs as allowances reverse in FY21e. With total allowance coverage being over 30% above the MAS’ regulatory limit, we believe there is further room for GP reversions in 2021. This would boost earnings.

We also believe Singapore banks could pay special dividends when the macroeconomic outlook stabilises. Capital ratios of 13.5–17.1% are higher than the banks’ optimal operating range of 12.5–13.5%. This is supportive of more aggressive capital optimisation. We believe the banks will also look for M&A opportunities with their excess capital.