Singapore banks to focus on fee income in 2013

Decelerating loan growth looms.

According to CIMB, with loan growth expected to decelerate in 2013 and continued NIM compression from funding and pricing pressures, fee and commission income should remain banks’ main focus going forward.

Here's more from CIMB:

System loan growth rebounded in Oct (+1.0% mom; +8% in 10M12), as demand for business loans returned after evaporating in Sep. DBU loans advanced 1.5% mom and 14.0% in 10M12, on robust demand for housing and business loans.

Monthly DBU business loans grew 1.2% mom, led by loans to non-bank FIs, manufacturing and other businesses. ACU loans dipped 0.2% mom on a general decline.

DBU deposits were flat with DBU LDR edging up 1.2% pts to 94.9%. S$ LDR rose to a 5-year high of 75.6%. ACU LDR continued to slide 1.0% pt as deposits outpaced loan growth.

Oct’s robust loan growth may not be sustainable, as it was largely led by non-bank FI lending. While mortgage volumes held up, we think that overall loan demand remains poor and loan growth is likely to fall within local banks’ guidance of mid to high single digits for this year.

Coupled with potential NIM compression, banks’ focus will likely be on fee income. Debt capital markets, treasury and trade-related fees could provide positive surprises.