SGD savings deposit growth flatlining as depositors seek options

Singapore

SAVINGS deposits' growth is plateauing as alternative instruments lure consumers with higher payouts for Singapore-dollar funds.

One major alternative competing with bank deposits could be Singapore Savings Bonds (SSB) - a type of Singapore Government Securities targeted at individuals. There has been massive interest in these bonds, with six out of eight issues oversubscribed this year despite upsizing the issuances since April. The September 2018 issue which has been upsized to S$300 million pays 2.97 per cent in year 10 and an average annual return of 2.44 per cent if held till maturity.

Banks are not sitting idly by and many including OCBC, UOB, HSBC and Standard Chartered have launched fixed deposit promotions.

Some are paying 1.50 per cent for 12-month fixed deposits while CIMB will pay 1.75 per cent for a 12-month online fixed deposit. DBS has one where it pays up to 1.75 per cent bonus interest for seven months.

The upcoming launch of the SGD-based investment grade corporate bond ETF which yields 3.22 per cent may see more savers turning away from bank deposits, said a DBS Group Research note on Friday.

The rise of deposit alternatives will drive short-term SGD rates higher in the coming months, said the note.

"The growth of SGD deposits has been anaemic in recent quarters (less than 1 per cent year-on-year in June). This may come as a surprise as the SGD has generally held up well versus peers, as Singapore has not faced outflow challenges that have impacted domestic liquidity in several emerging markets this year," it said.

As deposit growth slowed, the system-wide loan-to-deposit ratio has climbed back above 1.10, levels not seen since 2015. By this measure, liquidity available to the banking sector is thus relatively tight and this will show up in Sibor (Singapore Interbank Offered Rate) and SOR (Swap Offer Rate), said DBS. Sibors and SORS refer to wholesale or interbank rates.

DBS said SSBs and generally higher yields in government bills (and all other short-term papers) may be part of the equation why deposit growth has been slow.

The amount of SSBs outstanding is now close to S$3 billion.

Past subscription results suggest retail investors have a short-term yield hurdle of about 1.4 per cent, said the DBS note. "As such, the pace of liquidity withdrawal from this instrument has accelerated in recent months as yields climb," it said.

We note that in this rising interest rate environment, Singapore retail investors are constantly on the hunt for higher yields, said Tan De Jun, Ifast Corp equity analyst.

"This is corroborated by the massive interest in SSBs, where 6 out of 8 issues this year were oversubscribed," he said. In addition to that, the recent retail tranche of Temasek Holding's Astrea IV private equity retail bonds was 7.4 times oversubscribed, said Mr Tan.

In April the Monetary Authority of Singapore said that the monthly issuance size of the SSB will be increased from S$150 million to S$200 million effective the same month due to increasing demand.

The issue for July and August was raised further to S$250 million following oversubscription of the previous months.

In March the MAS also lifted the S$50,000 issue limit to S$100,000. The individual limit remains unchanged at S$100,000.

On the upcoming SGD-based IG corporate bond ETF, the DBS note said with a higher yield of 3.22 per cent and relatively short duration, this product may entice depositors to switch over.

A comparable ETF may be the ABF Singapore Bond Index fund, which has about S$750 million assets under management and this ETF offers a lower yield of 2.31 per cent, based on the last distribution of 2.61 cents per unit in January. "If the new ETF proves successful, deposits could take another hit," the DBS note said.

Investors seem keen on the upcoming ETF which is managed by Nikko Asset Management. Since July 19, NikkoAM has conducted 11 training events in collaboration with SGX and various distribution placement agents such as Phillip Securities, DBS Vickers Securities, UOB Kay Hian and iFast Financial.

"The level of interest has been very encouraging, and approximately 1,000 people have attended these events," said Phillip Yeo, NikkoAM international head of product development and management.

"Factors that found favour with investors are the diversification provided by the ETF, its risk reward characteristics and the convenience of being able to buy and sell it on the stock exchange," said Mr Yeo.

"We are also seeing good interest from institutional investors, some of whom are likely to invest after the listing of the ETF," Mr Yeo said.

A larger part of the ABF Singapore Bond Index Fund is held by institutional investors but there is growing interest from retail investors, added Mr Yeo. NikkoAM also manages the ABF Singapore Bond Index Fund listed in 2005.