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Macquarie On SIBOR Rise: Buy DBS, UOB For Over 9% Returns
Aspire, Hot Picks | 26 March 2015
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By: Raymond Leung
Articles (142) Profile

Analysts' updates on DBS, UOB, OCBC as at 19/03/2015

In the latest release of the Federal Open Market Committee minutes, the impending rising of interest rates was expressed by Janet Yellen, chairwoman of the Federal Reserve. How will Singapore banks be affected by the US’s interest rates?

Raising Rates But Weakening Currency

The Singapore Interbank Offering Rates (SIBOR) have increased by 0.53 percent since the start of this year as the pace builds up as well.

USD has strengthened against the SGD by 3 percent YTD (Year to Date) as the market flocks back to the greenback. Investors looking to find a safe haven to stash money will now have the option of USD as the Euro crisis continues to unfold.

Source: Market Watch of IR and FX, AsianBondsOnline

Impact On Singapore’s Banking Industry

Singapore banks’ earnings are expected to go up because of their sensitivity to increases in short-term rates as can be seen from the 3M SIBOR before.

Macquarie Equities Research believes that the margins and RoE (Return on Equities) of banks will increase in 2015. This is mainly because they are supposed by unhedged USD-denominated cash inflows. Furthermore, the three percent dividend yield and inexpensive valuations of the counters are attractive to investors.


DBS is expected to be the key beneficiary of the short-term SIBOR raise because of their CASA (Current and Savings Account) ratio and high excess SGD liquidity. Furthermore, DBS’s sizeable USD and HKD (HKD is pegged to USD) loan book will benefit from the increasing rates and strong USD.


The biggest share of SGD-denominated loans in the industry belongs to UOB and approximately 90 percent will be repriced if the SIBOR persists for more than three months. Furthermore, UOB’s fixed deposit pricing have to increase despite the SIBOR rise.


Even though OCBC will stand to benefit from the higher SIBOR along with the rest of the industry, analysts from Macquarie Equities Research remain cautious of its plan for the bank’s plan for the Greater China region.

Analysts’ Thoughts

Sentiments from the street are welcoming the higher interest rates and believe that it will benefit the local banks. They remain overweight on Singapore banks as SIBORs are at their highest levels since January 2009 and given the earnings sensitivity on higher rates, it is a good time to revisit the investment cases of the Singapore banks.

Analysts from Macquarie Equities Research prefer DBS and UOB over OCBC and maintained their “Buy” call towards DBS and UOB while giving “Hold” to OCBC.

Trained in fund management, Raymond is familiar with shares and various investment vehicles.

Please click here for more information about this author.

DBS Group Hldgs  25.070 +0.04 +0.16%   
Business: [FY18 Total Income] Institutional banking (43.7%), consumer banking/wealth management (42.9%), treasury markets and others (13.4%).

Insight: Apr-19, 1Q19 net profit rose 9% to a record $1.7b.... Read More
United Overseas Bank  25.730 -0.17 -0.66%   
Business: [FY18 Turnover] Group retail (43.3%), group wholesale (43.2%), global markets & investment management (5.1%), others (8.4%).

Insight: May-19, 1Q19 total income rose 7.8% to $2.4b due t... Read More
Oversea-Chinese Banking Corp  10.920 -0.03 -0.27%   
Business: [FY18 Turnover] Global corporate/investment banking (35%), global consumer/private banking (34.8%), OCBC Wing Hang (11.5%), insurance (11%), global treasury & mkts (7.7%).

Insight: May-19, 1Q19 total income rose 14.7% driven by str... Read More

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