Periodic/Sector reports
Banking: Benefitting From Structural Tailwinds; Healthy Competition For Customer Relationships
MARKET WEIGHT (Maintained)
Analyst
Highlights
- Singapore banks are supported by structural tailwinds, including continued influx of safe haven liquidity and broad-based trend of monetary tightening, which remains intact. We expect banks to report healthy 3Q26 results.
- OCBC and UOB offer attractive interest rates of 1.7% on new 12-month fixed deposits in October. We do not expect these seasonal promotions to degenerate into a price war. DBS would be least affected given its strong deposit franchise with high CASA ratio of 54.4% and low LDR of 73.5%.
- Maintain MARKET WEIGHT. BUY OCBC (Target: S$35.70) for its diversified growth from wealth management (63% of its fee income), trading income and insurance. We upgrade DBS to BUY (Target: S$83.60) due to its resilient deposit franchise and attractive 2027 dividend yield of 4.7%.
Analysis
- Banks endured a week of harsh selling. In total, DBS dropped 6.6%, OCBC 9.9% and UOB 8.6%. While the sell-down was sudden, vicious and steep, the structural tailwinds for banks remain intact:
- Continued influx of safe haven liquidity. Safe-haven inflows to Singapore are largely driven by structural factors, although their pace will fluctuate with geopolitical tensions and global risk appetite. Singapore’s appeal as a base for capital preservation is underpinned by its stable institutions, regulatory credibility and established wealth management ecosystem. Capital inflows to Singapore are also triggered by overseas uncertainties. Currently, several European countries are grappling with increased debt-servicing pressures, rising defence expenditures and ageing populations. Slower growth could add further strain to public finances when the European Central Bank is gradually withdrawing from bond purchases. Risk-adverse investors could reallocate capital from Europe to Singapore on concerns over debt sustainability.
- Broad-based trend of monetary tightening to suppress elevated inflation. Persistently high energy prices and prolonged conflict in the Middle East are reinforcing a shift towards tighter monetary policy, as central banks seek to prevent the initial increase in fuel and electricity costs from spreading into wages, services prices and inflation expectations. The latest Fed minutes indicated the unanimous decision to hike 25bp in September. There was broad discussion on the pace of upcoming rate hikes. Most policymakers assessed another rate hike is appropriate by end-26, likely coming on 9 Dec 26. The ECB raised interest rates by 25bp in Sep 26. It cautioned that inflation risk is skewed to the upside and monetary policy must remain restrictive.
- Seasonal promotions for fixed deposits aimed at luring new customers. UOB is offering attractive interest rate of 1.7% on new 12-month fixed deposits in October. The promotion is only applicable for fresh funds and last from 1-31 October. Likewise, OCBC is offering 1.7% for 12-month fixed deposits for online premier banking customers. DBS maintained interest rate at 1.0% for 12-month fixed deposits capped at placements of up to S$19,999. We see these seasonal promotions as healthy competition and jostling for new customers willing to move their savings for better returns and not indicative of system-wide funding shortage.
Highlights
- Singapore banks are supported by structural tailwinds, including continued influx of safe haven liquidity and broad-based trend of monetary tightening, which remains intact. We expect banks to report healthy 3Q26 results.
- OCBC and UOB offer attractive interest rates of 1.7% on new 12-month fixed deposits in October. We do not expect these seasonal promotions to degenerate into a price war. DBS would be least affected given its strong deposit franchise with high CASA ratio of 54.4% and low LDR of 73.5%.
- Maintain MARKET WEIGHT. BUY OCBC (Target: S$35.70) for its diversified growth from wealth management (63% of its fee income), trading income and insurance. We upgrade DBS to BUY (Target: S$83.60) due to its resilient deposit franchise and attractive 2027 dividend yield of 4.7%.
Analysis
- Banks endured a week of harsh selling. In total, DBS dropped 6.6%, OCBC 9.9% and UOB 8.6%. While the sell-down was sudden, vicious and steep, the structural tailwinds for banks remain intact:
- Continued influx of safe haven liquidity. Safe-haven inflows to Singapore are largely driven by structural factors, although their pace will fluctuate with geopolitical tensions and global risk appetite. Singapore’s appeal as a base for capital preservation is underpinned by its stable institutions, regulatory credibility and established wealth management ecosystem. Capital inflows to Singapore are also triggered by overseas uncertainties. Currently, several European countries are grappling with increased debt-servicing pressures, rising defence expenditures and ageing populations. Slower growth could add further strain to public finances when the European Central Bank is gradually withdrawing from bond purchases. Risk-adverse investors could reallocate capital from Europe to Singapore on concerns over debt sustainability.
- Broad-based trend of monetary tightening to suppress elevated inflation. Persistently high energy prices and prolonged conflict in the Middle East are reinforcing a shift towards tighter monetary policy, as central banks seek to prevent the initial increase in fuel and electricity costs from spreading into wages, services prices and inflation expectations. The latest Fed minutes indicated the unanimous decision to hike 25bp in September. There was broad discussion on the pace of upcoming rate hikes. Most policymakers assessed another rate hike is appropriate by end-26, likely coming on 9 Dec 26. The ECB raised interest rates by 25bp in Sep 26. It cautioned that inflation risk is skewed to the upside and monetary policy must remain restrictive.
- Seasonal promotions for fixed deposits aimed at luring new customers. UOB is offering attractive interest rate of 1.7% on new 12-month fixed deposits in October. The promotion is only applicable for fresh funds and last from 1-31 October. Likewise, OCBC is offering 1.7% for 12-month fixed deposits for online premier banking customers. DBS maintained interest rate at 1.0% for 12-month fixed deposits capped at placements of up to S$19,999. We see these seasonal promotions as healthy competition and jostling for new customers willing to move their savings for better returns and not indicative of system-wide funding shortage.
MARKET WEIGHT (Maintained)
Analyst
IMPORTANT NOTICE - DISCLOSURES AND DISCLAIMERS
This report is provided subject to, and must be read together with, the full Disclosures / Disclaimers available at this link, which are incorporated by reference into this report. In particular, this report is intended for general circulation and informational purposes only and does not constitute personal investment advice or a recommendation to buy or sell any investment product or security. You should independently evaluate the information and, where necessary, seek advice from a qualified financial adviser regarding the suitability of any investment. Analyst certifications required under applicable regulations, including SEC Regulation AC (where relevant), are included in this report. By accessing, receiving or using this report, you acknowledge that you have read, understood and agreed to be bound by the Disclosures / Disclaimers, as may be amended, supplemented or updated from time to time.
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