Chart of the Day: Check out Singapore banks’ plummeting customer yields

They’re hovering just below the 1% level.

Sluggish domestic lending and the pressure to make up for its downsized China exposures have deflated Singapore banks’ customer lending rates and spreads, aggravating its deteriorating asset quality.

According to a report by Maybank Kim Eng, unless interest rates rear their heads, net interest margins could tighten.

“After GFC, Singapore banks were spared the worst of pricing pressures as they redeployed their excess capital to Greater China. But price pressures, especially on large corporate and consumer loans, are beginning to be palpable,” the report noted.

Meanwhile, the report noted that if banks cannot expand their credit spreads in a heightened risk environment, then they could find it even more difficult to sustain NIMs when the credit cycle normalises.

“Lower ROEs and, hence, valuations may become unavoidable. UOB has been able to maintain elevated lending yields thanks to its SME franchise. DBS has been able to push through lower deposit rates, as usual, and manage funding costs through lower customer deposit costs from CASA and/or synthetics,” the report added.