Here's Singapore banks' saving grace amidst deteriorating assets

DBS seen to gain the most from a firmer SIBOR.

Singapore Banks' 3Q16 results revealed elevated bad asset ratios and generally higher credit costs, but RHB believes that expansion of net interest margins (NIMs) brought by impending US Federal funds rate could trigger earnings momentum.

"3Q16 NIMs were squeezed due to the low interest rates in Singapore. However, the impending US federal funds rate (FFR) hike should lead to a firmer Singapore Interbank Offered Rate (SIBOR) and widen local banks' NIMs," it said.

DBS seen to gain the most from a firmer SIBOR.

Singapore Banks' 3Q16 results revealed elevated bad asset ratios and generally higher credit costs, but RHB believes that expansion of net interest margins (NIMs) brought by impending US Federal funds rate could trigger earnings momentum.

"3Q16 NIMs were squeezed due to the low interest rates in Singapore. However, the impending US federal funds rate (FFR) hike should lead to a firmer Singapore Interbank Offered Rate (SIBOR) and widen local banks' NIMs," it said.

DBS seen to gain the most from a firmer SIBOR.

Singapore Banks' 3Q16 results revealed elevated bad asset ratios and generally higher credit costs, but RHB believes that expansion of net interest margins (NIMs) brought by impending US Federal funds rate could trigger earnings momentum.

"3Q16 NIMs were squeezed due to the low interest rates in Singapore. However, the impending US federal funds rate (FFR) hike should lead to a firmer Singapore Interbank Offered Rate (SIBOR) and widen local banks' NIMs," it said.

According to the research house, its sensitivity analysis shows that, in a steady state, a 10bps rise in SIBOR could raise DBS, OCBC and UOB's net profits by 1.7%, 0.8% and 1.2% respectively.

Singapore banks' asset quality continued to deteriorate in 3Q (NPL ratio rising by 10-20bps to ~1.4%), with oil & gas NPL ratio higher, eg +8% for Oversea-Chinese Banking Corp (OCBC).