Quick takes: The impact of SVB’s collapse on Singapore banks
SILICON Valley Bank’s (SVB) sudden collapse last week continued to spook global markets worldwide, with banking stocks across the world facing considerable pressure amid contagion fears.
Mid-sized regional lender SVB became the largest US bank to fail since the 2008 global financial crisis (GFC), with a rout in the lender’s stock that began last Thursday (March 9), spreading over into other US and European banks.
Less than 48 hours after the bank announced that it was planning to conduct a capital raise, the bank experienced a wave of withdrawals that sent its stock spiralling down. SVB was shut down by the California Department of Protection and Innovation on Friday, with the Federal Deposit Insurance Corporation appointed as receiver.
The bank was said to be exploring options, including a sale, after its efforts to raise capital through a stock sale had failed. Its UK business is also expected to be declared insolvent.
On Sunday, state regulators shuttered New York-based Signature Bank, which had total assets of about US$110.36 billion and total deposits of roughly US$88.59 billion as at Dec 31.
Economists from Citi Global Wealth Investments view the failure of SVB as a magnet for greater scrutiny to small- and medium-sized banks, with the potential for capital weakness. It however poses minimal risk for large banks, they said.
“While we do not view Silicon Valley Bank’s failure as a systemic event, its untimely failure is indicative of the unique set of stresses embedded in financial markets at this time. Its rushed closure and unique place within the tech ecosystem will have implications for markets and investor behaviour, in our view,” Citi said in a report on Sunday.
Singapore-based Lumen Capital Investors views SVB’s collapse as a result of higher-for-longer yields on the book of Treasuries held by the US Federal Reserve, as well as the impact of mortgage-backed securities held by banks as assets.
Highlighting the large number of US banks’ unrealised losses on available-for-sale and held-to-maturity securities as at end-2022, the multifamily office and asset manager believes more quantitative tightening will drain more liquidity out of banking systems globally. This will result in more banking stress in the next few months to come, said Lumen Capital.
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Singapore’s trio of local lenders took a hit in early trade on Monday, with the nation’s largest lender DBS shedding as much as 1.4 per cent, or S$0.47, to S$32.71 as at 9.24 am. The counter eventually recovered to S$32.92, down S$0.8 per cent or S$0.26, before the midday trading break.
UOB shares fell 1.8 per cent or S$0.52 to S$28.16 as at 9.26 am before clawing its way back to S$28.51, representing a S$0.17 or 0.6 per cent decline as at the midday trading break.
OCBC lost as much as 2.1 per cent or S$0.26 to S$12.11 as at 9.24 am. It gradually rose to S$12.24, down 1.1 per cent or S$0.13, by midday.
Analysts remained sanguine on the outlook of Singapore’s banks, arguing that there are several fundamental differences which set local lenders significantly apart from SVB:
Maybank Securities Singapore head of research, Thilan Wickramasinghe:
- “(SVB’s collapse) was more of an old-fashioned liquidity crisis than really a solvency crisis like what we saw during the GFC. So I think the systemic risk is relatively low, especially for Singapore banks. A large part of SVB’s client base is startups. Singapore banks’ customer bases tend to be mostly large corporates, as well as more premium clientele.”
- “One of the areas we would be watching for is second- and third-degree impact from Singapore banks’ exposure to private equity companies, who may have startups that might be facing a liquidity crunch.”
- “At the same time, we may have some corporates with some deposits in SVB. But at this stage, we do not think this is a major risk.”
Phillip Securities research analyst, Glenn Thum:
- “Singapore banks differ from SVB as the majority of (SVB’s) assets are in loans. Singapore banks’ ratio of securities to assets is 15 per cent, compared to SLB’s 57 per cent.”
- “While Singapore banks also face bond losses, the larger composition of variable rate loans results in the ability to pass on the higher interest rates to customers.”
- “While the quality or permanency of deposits is difficult to ascertain, SVB deposits almost tripled over three years. In comparison, Singapore banks only rose 22 per cent. The sudden spike for SVB does suggest the immaturity of the deposits.”
- “While SVB moved the majority of their fresh deposits into securities, Singapore banks’ focus was kept on loans growth and with the rise in interest rates, the higher funding costs could be passed on directly to their customers as a majority of the loans were on a floating rate.”
Lim & Tan Securities research team:
- “Our Singapore banks today are well capitalised and have ample provisions to weather any need for write-downs, and are ranked amongst the strongest and safest in world rankings and benchmarks.”
- “We see any share price decline in the Singapore banks today as an opportunity to ‘accumulate’ as:
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