Singaporean banks lure investors betting on US Fed rate rise

SINGAPORE (BLOOMBERG) - Singaporean bank stocks are priced near the cheapest valuations in 16 months as the city's borrowing costs and loan volumes drop, presenting an opportunity to investors betting on a U.S. interest-rate hike this year.

The decline in Singapore's interbank rate from a six-year high is temporary and it will probably rise in step with Federal Reserve rates in coming months, according to Samsung Asset Management's Alan Richardson. That's likely to boost interest income and margins at DBS Group Holdings Ltd., Oversea-Chinese Banking Corp. and United Overseas Bank Ltd., he said.

Shares of the banks, Southeast Asia's largest, slumped an average 4.6 per cent last month as the interbank rate retreated and as data showed outstanding loans in the city dropped for a third month in April to a one-year low. The lenders' mean price-book ratio slid to 1.25 times, the lowest since February 2014, data compiled by Bloomberg show.

"I'd use it as a buying opportunity," said Mr Richardson, who's based in Hong Kong and invests in the banks for Samsung Asset, which oversees US$112.5 billion (S$152.6 bilion). "Singapore banks are more in sync with the global interest-rate trend, which is to go up."

Since Tuesday, the bank's shares have risen an average 0.9 per cent, taking their mean price-book ratio to 1.26 times. DBS lost 1.9 per cent this year, compared with the Bloomberg Asia Pacific Banks Index's 6.3 per cent gain. OCBC dropped 4.2 per cent, while UOB sank 7.1 per cent.

The slump in the banks' shares was "overdone", said Kevin Kwek, an analyst at Sanford C. Bernstein in Singapore. "U.S. rates will eventually rise," which will boost the city's interest rates, he said.

The two countries' monetary actions are closely linked as Singapore manages its policies using an undisclosed basket of currencies belonging to its major trading partners. Investors expect the Federal Reserve to raise its benchmark rate for the first time since 2006 in December, according to bets placed in interest-rate futures markets.

This year's climb in the three-month Singapore interbank offered rate, or Sibor, helped boost first-quarter interest margins for the city's banks. After peaking at 1.02 per cent two months ago, the rate has dropped to 0.83 percent as of last Friday. That's still more than double its level from a year earlier.

Loans at the city's banks have contracted this year as the climb in Sibor deterred borrowers, while demand for trade finance had weakened amid an economic slowdown in Southeast Asia and China, Wai Ho Leong, a Barclays Plc economist, said last Friday. Outstanding advances fell to a one-year low of S$594.3 billion in April, Monetary Authority of Singapore data show.

The city's banks have placed 2.3 per cent of their lending books in a "special mention" category, the first signal that a company may struggle to repay, the highest since 2009, MAS data show.

Join ST's Telegram channel and get the latest breaking news delivered to you.