Domestic banking units (DBU) funding is being supported by foreign currency deposits and funding costs are expected to trend downwards as liquidity remains flush, say CGS-CIMB analysts Andrea Choong and Lim Siew Khee in a September 30 note. The analysts are maintaining “neutral” on the sector, recommending “hold” on all three banks with target prices of $20.46 for DBS, $9.38 for OCBC and $20.58 for UOB.

The contraction of system loans, a combination of domestic banking units (DBU) and Asian Currency Units (ACU), tapered off slightly, shrinking 0.7% m-o-m in August, compared to the 1.0% to 1.3% m-o-m decline over April to July, note the analysts.

This marks the fifth consecutive month of decline since regional borders were shut in March to contain Covid-19. The declines in August reflect the worst-hit sectors since March, which came mainly from the manufacturing (-13% over April to August) and general commerce (-15%) sectors, as well as reduced financing to financial institutions (-5%). 

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