Chart of the Day: Singapore banks’ NIMs overachieve for the last two quarters

Unfazed by shrinking SIBOR-LIBOR interest rate differential.

Analysts are upbeat on the interbank margin runs of Singapore banks, as they believe the spread would stay positive due to the inherent economic conditions in Singapore coupled with a relatively strong USD.

According to Maybank Kim Eng, from the perspective of their total book, Singapore banks are unlikely to open themselves to significant currency risks.

“But merely looking at the calculation of interbank NIMs, the long SGD and short USD position could be affected by the spread between SIBOR and LIBOR. When SIBOR is negative ie SIBOR lower than LIBOR, interbank margins tighten, since the banks are net lenders in SGD and borrowers of non-SGD. The reverse is equally true,” Maybank Kim Eng said.

From 2004 to 2008, SGD rates were lower than USD rates, represented by LIBOR, Maybank Kim Eng said.

“Borrowing USD in the interbank market to fund their USD assets and lending SGD with their excess SGD deposits would have resulted in a negative spread in their interbank assets. After 2009, the spread between SGD and USD rates turns positive, except during 4Q11-2Q12,” Maybank Kim Eng added.