Singapore banks still averse to funding diversification: Fitch

DBS, OCBC and UOB will continue to accumulate customer deposits aggressively.

Here's more from Fitch:

Funding Profiles Intact: Fitch Ratings expects Singapore’s three local banks to remain fairly disciplined in diversifying their borrowing sources. This is crucial given their high rating levels – and hence low tolerance – to funding vulnerabilities.

Focus on Deposit Growth: Customer deposits will continue to be central to the banks’ liabilities, backed by their solid franchise, ample liquidity and sound regulatory backdrop in Singapore – thereby preserving their credit profiles. The focus on deposit growth holds across most major currencies, despite opportunities for cheap non-deposit funds amid the current low interest rates.

Tapping Programmes Judiciously: The local banks have been increasingly active yet opportunistic when raising funds from their commercial paper and medium-term notes programmes, which have been expanded and broadened into new markets over the last two years. However, wholesale borrowings are expected to be moderate, supporting the banks’ funding diversity and flexibility, while allowing better matching on asset/liability maturity – and are therefore beneficial to the banks’ funding profiles.

Outstanding commercial paper, senior notes and subordinated debt equalled only a modest 7.7% of total interest-bearing liabilities at end-June 2012 (end-2010: 4.3%).

Borrowing Largely Dollar-Denominated: Much of the borrowing has been in US dollars, and has been quite cheap due to low interest rates and investors’ preference for highly-rated financial institutions, such as Singapore banks. The need for US dollars stemmed from the opportunistic surge in US dollar loans (65%), which outpaced the 28% growth in deposits in 2011 (see Figure 4). Surplus liquidity in Singapore dollars, with FX risk hedged using currency swaps, was also employed to meet the USD shortfall. 

Deposit Growth Continuing: Fitch expects the banks to maintain efforts in shoring up their US dollar deposit base, as evident in the deposit growth of 9% ytd in H112 (2011: +28%; 2010: +13%). One major source has been the multinational companies, partly due to fund reallocation to highly-rated banks amid rating pressures on several major European banks. Maintaining this progress would help address the banks’ high loans/deposits ratio in US dollars, which eased to an average 132% at end-June 2012 from 142% at end-2011. Staying Deposit Funded: This progress reflects the local banks’ record of maintaining balance sheets which are predominantly deposit-funded in their core markets, with their overall loans/deposits ratio ranging from 85% to 90%.