Maybank KE: Singapore banks may benefit from trade war fallout

Singapore’s port with the monorail to Sentosa island.Singapore’s port with the monorail to Sentosa island.

Singapore banks have reported trade-related sectors seeing rising credit demand, in what may be a counter-intuitive sign Southeast Asia is benefiting from the U.S. trade war, Maybank KimEng said in a note Monday.

Banking system loan data for May showed trade-related secctors such as manufacturing and transportation showed strong expansion both within the city-state and overseas, the note said.

Asian currency unit (ACU) manufacturing loans increased 20.7 percent on-year and manufacturing loan utilization jumped to 59.2 percent, the highest since June 2017, the note said.

“We believe these indicators point to increasing manufacturing utilization and capacity in ASEAN,” Maybank KimEng said. ASEAN stands for the 10-nation Association of Southeast Asian Nations.

“We believe this rising credit demand may be a sign of manufacturing and logistics capacity re-locating from China and ramping up in ASEAN,” the note said.

“Given the Singapore banks’ deep exposure to ASEAN, they are likely benefiting from this trend, in our view. Continued strength in loan
growth may result in positive earnings surprises,” Maybank KimEng said.

The brokerage tipped UOB as its top pick among the three Singapore banks, rating it Buy with a S$28.97 target price. It rates DBS at Buy with a S$29.46 target and OCBC at Hold with a S$11.07 target.

Shares of UOB were up 1.99 percent at S$26.65 at 1:58 P.M. SGT, while DBS was up 2.39 percent at S$26.58 and OCBC added 1.49 percent to S$11.57.

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