09 A good year for Singapore’s banks
With OCBC putting in place safeguards and contingency measures to deal with the effects of the issues related with the oil and gas sector, Singapore banks look set for an upbeat rhythm in 2018, with profit margins on an upward trend on the back of rising interest rates and healthy loan growth. DBS Group Research mentioned that whilst Singapore banks have had a good run in 2017 with one of the best sector performances to date with collective appreciation at about 30%, the volatile performance of the oil and gas sector have dented this positive outlook.
However, valuations would likely drive up in 2018, according to DBS, with the Singapore Interbank Offered Rate (SIBOR) rally kicking off, the recovery in the oil and gas sector at the tail end of 2017, a healthy loan portfolio that could be boosted further by the city-state’s relatively upbeat GDP growth at 3%, and the banks’ abilities to keep a clean asset quality trend.
According to the DBS report, net interest margin will continue to improve with three interest rate hikes from the US Federal Reserve expected on top of elements including competition and the rise in funding costs outside of Singapore operations.
Healthy loan growth
Loan growth, on the other hand, is recovering and is expected to continue to do so in 2018 at a rate of about 7% to 8%. RHB Securities analyst Leng Seng Choon noted that recent activity in residential property en bloc sales is a contributor to loans expansion. Meanwhile,uob and OCBC are set for a positive trajectory with OCBC having a sustained strong non-interest income franchise.
On the other hand, UOB is underpinned by a recovery in the property market, given the bank’s share of property-related loans.
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