Singapore banks' deposit pool is phenomenally drying up

This was last witnessed 11 years ago.

History is threatening to repeat itself as Singapore banks suffered a phenomenal drop in total deposits in May.

According to CIMB, two points to highlight in May’s bank stats are: 1) a shrinking deposit pool, with May 14 total deposits lower yoy – a phenomenon not seen since SARS (1Q03); 2) good loan growth to businesses and FIs making up for slack mortgages (+2.5% YTD) and consumer loans. With deposit competition a key concern, our top pick is DBS, as its larger CASA base provides shelter.

Here's more from CIMB:

A worrying trend that appeared in May is that DBU deposits shrank (-0.8% mom, -0.2% YTD), led by an outflow of fixed deposits.

We have to go back to as far as Mar 03 (SARS) to find a yoy decline in system deposits. As loan growth continues to outpace deposit growth, DBU LDR is up (May:111%, Apr:109%), so is S$ LDR (May:84%, Apr: 83%).

A shrinking deposit pool is worrying as banks will have to compete aggressively for a shrinking pie, hiking up funding costs for all. The concern is accentuated with the new LCR requirements, especially for the foreign banks who need to offer attractive rates to compete.

If higher rates merely poached time deposits from the local banks, it would not be a worry. However, recent CASA packages suggest that the local banks are equally wary of CASA slippage.