RETAIL BANKING | Staff Reporter, Singapore

Singapore banks' deposit market share under threat from foreign banks

They have already increased fixed deposit rates at ~1%.

According to Barclays, system deposit growth in 3Q12 has rebounded (up 2.6% between June to August 2012) after a temporary slowdown in 2Q12 (0% q/q).

Here's more from Barclays:

Fixed deposits have grown faster than lower-cost CASA deposits, as a result of rising competition for funding led by foreign banks (offering promotional rates of ~1%).

While the three domestic Singapore banks have strong deposit franchise domestically, they have also increased fixed deposit rates at ~1% in order to protect market share. In 3Q12, we expect SGD deposit funding costs to have risen by ~2bp q/q on average.

Liquidity is clearly important to fund business growth, but as loan demand slows, we see less of a need to boost liquidity in the near term. Singapore banks’ excess liquidity position could be a near-term drag on net interest margin if loan to deposit ratio falls. 

The Singapore banks continue to improve their already-strong liquidity position via continued issuance of medium-term notes and commercial paper while moving away from funding via the interbank market.

Longer-term funding should allow the Singapore banks to weather any potential future tightness in liquidity because of rising economic headwinds and meet tougher regulations owing to “stable” sources of funding under Basel III.

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