Why UOB has the most to gain from stronger Singdollar rates: Macquarie

[SINGAPORE] UOB offers the highest upside potential among the three local banks, having a “significant valuation discount” and a stronger leverage that sees it benefit most from improving Singapore dollar rates, according to Macquarie Equity Research.

The three-month compounded Singapore Overnight Rate Average was at about 1.4 per cent as at Sep 30, compared with 1 per cent at the start of 2026.

This is set to rise further to about 1.44 per cent in the first quarter of 2027, as the US dollar strengthens due to a hawkish US Federal Reserve.

“While all three Singapore banks benefit from improving Singdollar rates, UOB is the most leveraged to this theme, with 43 per cent of loans in the Singdollar and 66 per cent of revenue from net interest income (NII),” said Macquarie’s Jayden Vantarakis in a Thursday (Oct 1) note.

By comparison, the average between DBS and OCBC is about 37 per cent for loans and around 58 per cent for NII.

UOB’s price-to-earnings multiple is about 28 per cent lower than the average between DBS and OCBC, with its price-to-book multiple about 49 per cent lower. It also offers more than double the upside potential at 12 per cent, compared with 5 per cent for its peers, including dividends.

Macquarie, which has an “outperform” call on all three banks, said that it prefers UOB among the trio, followed by DBS and OCBC.

DBS is supported by a return on equity exceeding 18 per cent, strong capital management, and a rising rate environment that benefits both interest and fee income. OCBC, meanwhile, continues to benefit from positive momentum “evident in the group’s wealth franchises”, said Vantarakis.

A steeper yield curve and favourable rates should support wealth management and NII for all local banks, he added.

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Meanwhile, RHB in a Friday note raised OCBC’s target price from S$32.85 to S$33.70, also citing the trend of rising benchmark rates.

That may provide operating income of the Singapore banks with “another leg for growth”, which has predominantly been carried by non-interest income in recent quarters.

Loans rise

Macquarie noted that across Singapore, business loans rose 1 per cent month on month in August, led by financial institutions rising 2.3 per cent and building and construction up 0.9 per cent. Transport loans grew 1.9 per cent, while manufacturing loans declined 3.4 per cent.

In August, mortgage loans increased 0.7 per cent month on month, even as developers sold 79.1 per cent fewer homes at 153 units.

That number was also 92.2 per cent lower year on year, driven by a lack of new launches during the lunar seventh month, which was two weeks earlier than in 2025.

Credit card loans rose 1.9 per cent month on month, while deposits were up 0.7 per cent. Demand deposits rose 1.5 per cent and fixed deposits increased 0.6 per cent, while savings deposits fell 0.3 per cent.

The low-cost current account and savings account deposit ratio stood at 48.8 per cent, up 0.1 per cent month on month. The banking sector’s loan-to-deposit ratio was up 1.3 percentage points at 71.6 per cent – the highest in more than three years.

Total business loans were up about 16 per cent on a year-on-year basis.

Shares of UOB fell 0.5 per cent or S$0.23 to close at S$43.11 on Friday.