Singapore’s big three banks win big on sharp SIBOR hike

Local banks are most rate-sensitive in the region.

Banks stand to benefit greatly from the recent spike in short-term interest rates, a report by DBS stated.

The SIBOR has been trending up in the past few weeks, driven by the SGD’s weakness relative to the greenback.

After the MAS flattened the SGD NEER slope yesterday, the SIBOR and the SOR saw yet another spike. DBS notes that the move will relieve some pressure off the forward points and bring down SOR and SIBOR to more sustainable levels.

The rise in SIBOR should be a net positive to NIM and earnings, because it has a direct implication on asset/loan yields.

“Based on our sensitivity analysis, every 10bps rise in NIM will lift earnings by 5-7%. We have been waiting for years for this scenario to pan out. The last time we saw SIBOR spike up was in 3Q08 to 1.85% before sliding down to a low of 0.38% and it has stayed there since. It is key to note that banks with high CASA-to-total deposits ratio and low S$ loan-to-deposit ratio would be the ones to benefit. Between OCBC and UOB, the former fits the bill,” stated DBS.