Singapore Banks: Resilient Amidst Global Challenges

Singapore’s banks remain robust despite global financial uncertainties, according to the Monetary Authority of Singapore (MAS) in its Financial Stability Report 2024. The latest industry-wide stress test confirmed the banks’ ability to withstand potential downside risks. The domestic systemically important banks (D-SIBs), including UOB, OCBC, and DBS, maintain liquidity buffers well above regulatory requirements, ensuring stability.

Non-bank deposits, which comprise over 80% of banks’ funding, continue to support their balance sheets. In the third quarter of 2024, current account savings account (Casa) ratios increased. Customers moved funds to Casa accounts, anticipating lower interest rates. This shift highlights customer confidence in local banks as safe havens.

Despite elevated borrowing costs, asset quality remains strong, with precautionary buffers mitigating credit risks. MAS noted a gradual recovery in overall lending to non-bank entities, driven by easing global interest rates. Loans to Singapore residents lead this recovery, while trade-related sectors showed early signs of improvement. However, small and medium enterprises (SMEs) faced declining loan values. This is partly due to the expiry of pandemic-era support from Enterprise Singapore.

Singapore banks are a haven from volatility

Credit demand is expected to rise as corporates seek financing for capital expenditures and acquisitions. Banks plan to maintain strict underwriting standards to navigate economic uncertainties, including geopolitical tensions. This cautious approach ensures stability while fostering growth opportunities.

Singapore banks also offer investors a haven from market volatility triggered by the 2024 US elections and Federal Reserve rate adjustments. UOB, OCBC, and DBS present low earnings downside risk and attractive dividends. According to RHB’s report, their net interest income (NII) and margins may see upside potential due to a measured Federal Funds Rate cut cycle. Dividend yields for FY2025 stand at a competitive 5.6%, with DBS providing assured dividend growth and UOB and OCBC offering potential upside.

Projected profits after tax and minority interests (PATMI) for Singapore banks are set to grow by 1% to 2% annually from FY2024 to FY2026. A notable 7% year-on-year PATMI increase for FY2024 underscores the sector’s resilience. Singapore banks continue to demonstrate their strength as cornerstones of the nation’s financial stability.