Singapore banks' trading print to offset lower interbank rates

Loan growth for the major banks are likely to be 1-2% QoQ.

The downturns in interbank rates are likely to affect Singapore banks’ margins and revenue but a healthy trading print will counteract the effects, as provisions are likely to stay heightened as reserve buildups reverse the impact of outsized allowances, a Jefferies report said.

The three-month interbank rates for USD/HKB and SGD for Q2 fell c.90bps sequentially whilst regional rates dropped 40-60bps. Until May, system loans for Singapore dwindled 2.3% QTD on the back of business and consumer loans, but overall loan growth climbed 3.4% YoY.

Q2 margins are expected to slide 11-26bps QoQ at the least for OCBC and most for DBS. Loan growth for the three major banks is expected to range 1-2% QoQ due to regional non-trade corporate loans.

Fees from cards, wealth management and banca will likely contract due to the circuit breaker, the report said, but market linked and insurance revenue is likely to improve due to better market conditions and higher yield curve.

As interbank rates have further dropped in July, banks are likely to gain from lower deposit rates even if it will weigh on margins. As such, 2Q may mark bottoming out of quarterly net interest margins, Jefferies said.