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Singapore banks close at new 52-week lows; Sibor falls

SHARES of Singapore banks closed on Monday at new 52-week lows, with the Singapore interbank offered rate (Sibor) also falling following the emergency Fed rate cut earlier this month over the novel coronavirus outbreak.

At close, DBS ended at S$21.15, slumping 8.04 per cent given its greater sensitivity to lower rates relative to its peers.

UOB finished at S$21.50, down 7.33 per cent, while shares of OCBC lost 6.76 per cent to end at S$9.52.

The three-month Sibor on March 9 stood at 1.357 per cent, Bloomberg data showed. This is a slide from 1.627 per cent on March 3, before the Fed made an off-cycle rate cut of half a percentage point overnight.

Citi Research on Monday turned bearish, downgrading the Singapore banks to "sell". Citi sees further material downside on the trio's share prices as the bank-brokerage expects short-term Fed interest rates to hit and stay at zero for much of the next nine months.

Singapore banks also may not defend their dividend levels, Citi added, as it slashed target prices again from its lowered estimates on March 4. This is one of the rare "sell" calls on the Singapore banks, checks on Bloomberg showed.

Citi's target price for DBS is S$17.50, down from S$24.40, that for OCBC has fallen to S$8.85 from S$11, while its target price for UOB is S$19.30, down from S$$24.40.

With Singapore rates tracking US rates, the expectation of weak Fed rates will squeeze net interest margins (NIMs) of banks, while a slowdown in growth raises asset quality risks, bringing higher credit costs. Citi expects NIMs could fall to similar lows seen after the global financial crisis, which was the last time Fed rates fell to the zero lower bound. The zero lower bound reflects that interest rates can no longer fall any further below zero per cent.

Citi has also assumed credit costs to hit about 40 basis points (bps), higher than the 25 bps on normalised levels.

"Against such a backdrop we view that returns on equity (ROEs) could trend below 10 per cent and if so, banks may no longer defend recent dividend levels, removing a key price support."