SIBOR set to buoy Singapore banks from slow mortgage growth

Every 10bps rise in SIBOR could offset a 1ppt slowdown in loan growth.

Whilst the US-China trade war and the Singapore Government’s property cooling measures could slow loan growth, a rising US federal funds rate (FFR) and a firmer SIBOR will widen banks’ net interest margins (NIM), RHB Research said.

Also read: Higher mortgages loom as Singapore banks move to offset dismal lending

RHB Research analyst Leng Seng Choon noted that the 3-month SIBOR has risen to 1.63%. "We did a sensitivity analysis which examined the likely impact on earnings from a 10bps rise in the SIBOR, as well as a 1ppt fall in loan growth. Our conclusion is that a 1ppt slowdown in loan growth would be offset by a 10bps rise in the SIBOR," he said.

This means the impact of the government’s property cooling measures would be offset by the expected increases in the SIBOR over the next few quarters.

Leng noted that UOB is a beneficiary of rising FFR and said, "UOB’s management indicated its intention to lower CET1 CAR, and we see this translating into higher dividends, which could catalyse its share price higher."

He forecasted the bank's NIM to widen to 1.97% by 2020 from 1Q2018's 1.84%. He noted that the return on equity improved (ROE) to 11% from Q4's 9.8% and the bank is guiding for 12% in end-2019.

DBS' earnings are also expected to improve the most from every 1 bp rise in the SIBOR. "Whilst the ongoing trade war between the US and China could slow DBS’ loan growth (more than peers), we believe the rise in the SIBOR could offset the negatives," Leng said.