SINGAPORE – Shares of the three local banks have been on a roll this week as investors flocked to a sector buoyed by the prospect of many more months of high interest rates.
The banking rally has also been lifting the Straits Times Index, given the lenders have an outsized weighting in the local share market benchmark.
DBS Bank, UOB and OCBC Bank all hit fresh one-year highs on July 3 and built on that on July 4 with DBS closing up 0.05 per cent at $37.98, while UOB added 0.93 per cent to $32.57 and OCBC put on 1.14 per cent to $15.15.
They are now up around 5 per cent over the past five days, but it’s the year-to-date rises that are more striking: DBS is ahead 25.6 per cent from Jan 1, while UOB is around 14.3 per cent higher and OCBC, 17.3 per cent higher.
The STI has benefited as well, advancing 2.9 per cent over the past five days, and 6.2 per cent so far this year to a one-year high of 3,439.88 on July 4.
Mr Alvin Chow, chief executive of financial education company Dr Wealth, said the uptrend for the Singapore banks mirrors the performance of their peers in the United States, where the Dow Jones US Banks Index is up about 5 per cent over the past week and 14.1 per cent so far in 2024.
Mr Chow noted that US banks will report earnings next week and investors may be buying in anticipation that the banks will report good results, underpinned by high interest rates, which typically boost bank profits.
The Singapore banks report their second-quarter results in August and there are expectations they will declare interim dividends, a factor that could be driving up share prices, reported RHB Singapore.
Their positive performance comes ahead of the United States Federal Reserve meeting on July 30 and 31, when it is widely expected to hold rates at the 5.25 per cent to 5.5 per cent range.
But markets are looking at two cuts of 25 basis points each in September and December. That will bring rates to around 5 per cent, still markedly above the 0 per cent to 0.25 per cent level they were at before the Fed started hiking aggressively in March 2022.
High interest rates will continue to support net interest income, said Mr Glenn Thum, senior research analyst at Phillip Securities Research.
Net interest income, which is the primary source of revenue for the banks, is the difference between how much a bank earns from lending to borrowers and how much it pays to depositors.
RHB added that because Singapore banks are flush with cash, some have reduced their deposit rates, which will lift their net interest income further.
However, the banks are finding it harder to lend money as loan growth slows amid high interest rates, a problem that looks set to continue, said Mr Pramod Shenoi, head of Asia Pacific research at credit research firm CreditSights.
DBS, OCBC and UOB noted in their first-quarter results briefings that the loans pipeline looked less promising in the second quarter, with all three expecting low single-digit loan growth in 2024.
Mr Thum said non-interest income, particularly fee income, is growing at double digits as investors shift funds from fixed deposits into investment products to get higher returns.
“We should continue to see an increase in fee income and non-interest income as more fixed deposits start to mature,” he added.
Mr Chow said credit card fees will also stay strong, supported by the travel rebound, which could lead to more overseas spending.
