Singapore banks gasp for air as customers shun Singapore savings bonds

Take-up rates fell to 7.3% this month.

The appetite for Singapore savings bonds have completely gone south, as the Monetary Authority of Singapore (MAS) announced that issuances have amounted to a mere $164m this month.

According to a report by Maybank Kim Eng, MAS is offering $7.6b SSBs for 2015 and 2016, or only roughly 1.3% of the system’s Domestic Banking Unit (DBU) deposits.

Maybank Kim Eng said low demand for SSBs could be attributed to declining Singapore government securities (SGS) bond yields translated into lower average returns and banks in Singapore continue to offer competitive FD rates.

“Rates for SSBs are determined by the average SGS yields. Yields have been coming down for the past five issuances, thereby making SSBs unappealing. SSBs are positioned as safe and long-term saving products for individuals,” Maybank Kim Eng said.

“Early withdrawal will result in lower rates compared to banks’ promotional rates for FDs. As a result, individuals opt for FDs instead if they are only looking to make short-term deposits,” the report explained.

Meanwhile, Maybank Kim Eng said foreign banks are pricing more aggressively at promotional rates of 1.5-2%, which is part of ongoing efforts to improve their deposit base to meet higher liquidity coverage ratio requirements set by MAS.

“Against a slow and cautious lending landscape, we doubt banks will be in a hurry to price liabilities aggressively. We expect NIMs for Singapore banks to remain flat as the rise in rates is unlikely to be as pronounced as it was in 2015,” the report said.