Singapore banks’ NIMs to benefit from mortgage repricing, Morgan Stanley says

Singapore two-dollar bills

Singapore banks are set to see their net interest margins (NIM) rise ahead as mortgage rates begin to reprice in line with 62-67 basis point increases in SIBOR and SOR since 2016, Morgan Stanley said in a note this week.

“One of the key drivers of value in Singapore banks, in our view, is NIM, but second quarter NIM was flattish due to this lag in loan repricing as well as excess liquidity built up in anticipation of global uncertainties. Anything that helps the upward trend in NIM resumes is positive, in our view,” Morgan Stanley said. “If banks were to reprice mortgage rates in the second half, we expect NIM benefits will start to flow through.”

Morgan Stanley pointed to a Business Times article saying the city-state’s banks are likely to reprice mortgage rates by 20-40 basis points in the second half and after OCBC indicated in its recent analyst briefing that only a small part of its mortgage book has been repriced, with more to come in the second half of the year. DBS also mentioned that NIM expansion from mortgage repricing would be seen over the next 12-18 months, the note said.

It noted that new mortgage spreads have been trending down, to around 30-40 basis points, an all-time low.

It forecast DBS and OCBC would see on-half NIM expansion of 6 basis points and 3 basis points respectively, but that UOB’s NIM would remain “flattish,” but it added that it saw upside risk to its NIM forecasts.

It tipped DBS and OCBC as its top picks among Singapore banks, rating them at Overweight. It was a S$30 target price on DBS and a S$13 target on OCBC.

It rates UOB at Equalweight with a S$27.20 target

“We think stronger domestic growth, better labour data and gross fixed capital formation in 2018 should be supportive of retail lending, and, as a result, we expect all of the Singapore banks under our coverage to see higher loan growth in 2018 vs 2017,” it said.

OCBC was up 0.71 at at S$11.28 at 10:01 A.M. SGT on Friday, while UOB was up 1.54 percent at S$27.10 and DBS was up 1.43 percent at S$25.46.

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