What has been mitigating Singapore banks contracting NIMs?

The three banks have been registering higher LDRs.

As singapore banking heavyweights experiencing a quarter of hard knocks with lower net interest margins (NIMs), its steady increases on loan-deposit ratios (LDR) make the burn less painful.

According to a report by Maybank Kim Eng analyst Ng Li Hiang, steady increases in LDRs have mitigated part of the contraction in banks’ net interest margins, caused by easing rates and lower credit spreads.

For instance, DBS' group LDR skyrocketed an all-time high from 59.9% in 2002 to 91.8% in the previous quarter.

UOB has a lower LDR but still on the high side at 84%. OCBC, on the other hand, has 82.2%.

"DBS typically has a big catchment of SGD deposits and a lower SGD LDR than peers. Its high group LDR was partly attributable to a high USD LDR of 99.2% vs peers’ 63-64% as of 2Q16," Ng explained.

However, with its high LDR and tighter liquidity than peers, the analyst expressed worry that it may have already maxed out its LDR.

"Indonesia’s recent tax amnesty adds to the uncertainties. Anecdotal evidence already points to the repatriation of some Indonesian funds parked in Singapore. Any large outflows could tighten liquidity in the system, spike LDRs and squeeze banks which fund loans through the interbank market," he said

The three Singapore bank giants have registered an average net interest margin (NIM) of 1.74% this second quarter, a partial dip from the recorded 1.79% the previous quarter, with only DBS registering an improvement to 1.87%.

OCBC's NIM fell from 1.75% last quarter to 1.68% while, UOB's 1.78% NIM for the first quarter dropped to 1.68%.