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Singapura Finance Ltd (SFL) (SGX: S23) is the smallest listed Finance company in Singapore with a market capitalization of S$167 million (as at 11 Feb 2015). Similar to the other Finance companies, Hong Leong Finance (SGX: S41) and Sing Investments & Finance (SGX: S35), SFL provides loans to the real estate sector such as mortgages and construction loans; loans to small & medium enterprises (SME) and hire purchases. Total gross loans as at 31 Dec 2014 stood at S$870 million, accounting for 71.8% of total assets (S$1.2 billion).


Financial Profile

Despite being a small-cap Finance company, SFL has been able to aggressively grow its loans over the years. Total gross loans grew from S$523 million in FY2010 (FY ends in Jun) to S$801 million in FY2014 while being able to attract deposits at a steady rate from S$601 million in FY2010 to S$847 million in FY2014. Its loans-to-deposit ratio has remained conservative under 1x, although it has climbed from 0.87x to 0.95x during FY2010 to FY2014. SFL’s funding source remains “sticky”, relying predominantly on deposits. However, profitability of the Group has come under pressure over recent years due to the low interest rate environment and intense price competition faced by large financial institutions. Net interest margins have declined from 3.18% in FY2009 to 1.97% in FY2014. This is due to the low yield on loans while cost of retail deposits have been slowly moving up. Return on equity (ROE) currently stands at 3.4% in FY2014.


Asset Quality

SFL maintains a tight control over its loan quality. Non-performing loans ratio stood at 1.4% with the most of the non-performers secured by collateral. Moreover, the Group has maintained a relatively high capital adequacy ratio (CAR) of 20%, which is sufficiently above MAS’s requirement of 10%.


Latest Quarter Review

The Group had earned an operating profit before allowances of S$1.9 million for 3Q2014, an increase of 13% over the last quarter. The strong performance was attributed to an improvement in net interest income although partially offset by higher total operating expenses. For the half-year ending Dec 2014, the Group reported operating profits before allowances at S$3.9 million , increased 8.9% over a year earlier. Net interest income grew during the half year by 25.2% driven by higher loan yield and volume while non-interest income declined by 43.6% due to lower gains on investment sale and dividend income. Total operating expenses increased due to higher staff costs.


Value in Action

Being the smallest listed Finance company in Singapore, SFL has survived a long way competing with the big financial institutions. However, with the current low interest rate environment and major banks actively attracting deposits with higher rates would add competitive pressure to SFL which might continue to impact the Group’s net interest margins.


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