Banks' NIM expansion could hit 1-2bp in Q2

Both OCBC and UOB could have a NIM expansion of 2bp during the period.

Net interest margin (NIM) expansion across Singapore banks could reach 1-2 bp in Q2 2019 amidst the tailwind effects of their mortgage repricing efforts, according to CGS-CIMB.

The report noted that banks raised board rates of up to 40-50 bp in Q1 2019 towards higher effective SIBOR-linked rates.

“That said, contributions to NIM from banks’ mortgage books may be a touch lower in H2 2019 as we note some competitive pricing to maintain market share. Beyond peaking SIBOR/SOR rates and the revision of mortgage rates, the key downside risk of a Fed rate cut in 2H19 will weigh on NIMs over FY20-21,” CGS-CIMB analyst Andrea Choong said.

Furthermore, the analyst believes that DBS will have a NIM expansion of 1 bp whilst both OCBC and UOB will have a NIM expansion of 2bp for Q2.

Meanwhile, the report accounted for slower regional growth amidst the US-China trade tensions, although the asset quality of banks’ Hong Kong and China remain intact.

“Looking into DBS and OCBC’s HK book, we believe that some of the slowdown in growth could be due to an overstocking of inventory in months prior to the recorded contraction. In keeping with the pace of system growth, a revision in loan growth targets (especially mortgages) may be on the cards,” Choong said.