BankBazaar Singapore – January 9, 2018
Singapore: Banks in Singapore can look forward to a strong performance in 2018 as the recent spike in SIBOR and increase in loans could offset other economic concerns.
The interbank exchange rate hit a 10-year high this week, increasing more than 1.5% according to data from Thomson Reuters. For the local banks, this is good news as they can raise their loan interest rates.
Leng Seng Choon, an analyst at RHB Securities Research, pointed out that the interest rate, along with a better residential property market and strong GDP figures, should help banks improve their profits, according to The Straits Times. 2017 was the best year for Singapore residential property market since 2013.
The country’s GDP had risen about 3.1% in the last quarter. This should encourage businesses to make more investments and which, in turn, could lead to an increase in demand for loans. Local banks such as United Overseas Bank (UOB), DBS, and the OCBC Bank are expected to see a steady rise in loans.
The Singapore Exchange too has a similar opinion on the matter. Earlier this week, the investment holding company had said that a majority of institutional investment in 2017 was directed towards banks, according to the Nikkei Asian Review.
However, Leng added that Singapore will continue to see an increase in non-performing loan (NPL) ratios. Loans are considered non-performing when they are not repaid within a specific period.
There is also the risk of strengthening oil prices, but excess systemic capacity and weak charter prices could keep companies in the oil and gas service industry under pressure. This sector may witness a deterioration in asset quality.
Comments from RHB follow a recent research note from DBS that speculated OCBC and UOB may have dealt with their asset quality issues by the end of 2017. UOB may even have struggled with non-performing loans in the final quarter. But the upside appears to be that the major concern over asset quality might be over.
Lim Sue Lin, a researcher at DBS Group Research, added that property market recovery and better interest margins should improve bank earnings. UOB, in particular, could feel the difference as it has the most number of property loans.