Chart of the Day: Take a look at the worrying drop in Singapore’s domestic deposits

This is the first decline since 2003.

Banks are getting wary of Singapore’s shrinking deposit pool, and they might hike up everyone’s funding costs in the process.

According to CIMB, the year-on-year decline in domestic deposits revealed in Singapore’s May banking statistics has not been seen since the SARS epidemic in 1Q03.

“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%),” reported the CIMB.

Here’s more from the report:

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.

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.