In her June 6 report, Kwok notes that Singapore’s lenders’ LCR ratios remain healthy as at 1QFY2023 despite the rising interest rates as the net cumulative outflow driven by deposit profiles is modest. The healthy LCR ratios were also attributable to the banks’ pre-emptive increase of their deposit rates to garner more stable deposits while boosting a higher share of high-quality liquid assets (HQLA). In addition, the outflow of deposits to the digital banks has been limited as deposits in Singapore’s three banks comprise some 73% of the sector’s deposits in March. (LCRs ensure that banks have sufficient HQLA to meet cash outflows for 30 days.)
As of 1QFY2023, United Overseas Bank’s (UOB) LCR ratio was the highest among its peers while DBS Group Holdings saw the lowest increase in total net cash outflows on a y-o-y basis compared to its peers. UOB also saw the highest y-o-y rise in HQLA at 26% compared to its peers.
With Singapore banks competing to offer its clients attractive deposit rates, with the highest quoted rate on a 12-month fixed deposit at 13% in 1Q2023 compared to 5.3% in 4Q2022, the elevated funding costs could weigh more on the net interest margins (NIMs) of Oversea-Chinese Banking Corporation (OCBC) and UOB. Banks have weaker current account, savings account (CASA) ratios, compared to DBS, which makes them more vulnerable to rising interest expenses.
However, DBS’s lower borrowing cost and CASA ratio of 57% - which outpace its peers – could also be at risk as the bank saw the sharpest CASA decline among its local peers at 18 percentage points y-o-y in 1QFY2023. OCBCand UOB’s CASA ratios fell by 15 and eight percentage points respectively on a y-o-y basis in the same period.
See also: Singapore bank bonds can stand tall in 2H2025 on flight to quality
As at 4.43pm, shares in DBS, OCBC and UOB are trading at $31.17, $12.65 and $27.99 respectively.
