“We believe DBS is best positioned to surprise on the upside from rising SIBOR,” he adds. “Together with strong execution and a potential dividend yield of 5.4% (amongst the highest real dividend yields in the region), it remains our top pick.”
Maybank has a “buy” call on DBS with a target price of $29.56.
According to Wickramasinghe, the Singapore Interbank Offered Rate, or SIBOR, has increased by six basis points year-to-date. This follows a 63bps rise in 2018.
The way he sees it, SIBOR is expected to continue to rise this year, as some bank deposit liquidity gets diverted to Singapore Savings Bonds (SSB) and the Monetary Authority of Singapore (MAS) maintains its current SGD appreciation policy in April.
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“A simulation of a further 10bps increase in SIBOR from our base case shows that net interest income will rise 0.5% for DBS, followed by 0.2% for OCBC and 0.1% for UOB,” Wickramasinghe says.
While Wickramasinghe believes OCBC may also benefit from the rising rate, he notes that 40% of its earnings are tied to non-interest income – largely from volatile insurance earnings.
Hence, Maybank is keeping its “hold” call on OCBC until execution risks become clearer. The research house has a target price of $10.73 on OCBC.
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Meanwhile, Maybank has a “buy” recommendation on UOB with a target price of $29.71.
