Banks' earnings expected to stay strong with higher-for-longer rates

S’pore bank chiefs optimistic about net interest margins, but headwinds remain

- Prisca Ang

Singapore banks are expected to benefit as their margins are propped up by higher-for-longer interest rates, but headwinds remain in areas such as loan demand, said analysts.

DBS Group Holdings and OCBC Bank started the year strong with earnings that rose to new highs, boosted by factors such as higher fee income due to stronger market sentiment.

However, UOB had a muted start to 2024 as its net profit fell 2 per cent to $1.49 billion, amid higher funding costs and increased competition for high-quality loans.

Mr Willie Tanoto, a senior director in Fitch Ratings' Asia-Pacific financial institutions team, told The Straits Times that higher-forlonger interest rates have lengthened the runway for the three banks' net interest margins (NIMS), and expects that this will help the lenders sustain revenues above 2023's record levels.

"Market expectations of delayed US Fed rate cuts are keeping asset yields high, but as banks get more clarity that rates have peaked, they are able to adapt their funding strategies to reduce deposit costs," he said.

The banks' chiefs said in their results briefings that they were optimistic about their NIMS, which measure the difference between the interest income earned by banks and the amount of interest paid out to depositors.

This comes as the US Federal Reserve has held interest rates steady, even as it earlier predicted three rate cuts in 2024.