Singapore banks slide as analysts warn rate hikes could dent profits

After the Fed's September rate hike, market sentiment toward Singapore's DBS, OCBC and UOB turned negative as analysts warned that rising deposit rates could outpace loan rate growth, squeezing net interest margins. Citi responded by trimming earnings forecasts for all three banks, downgrading OCBC to a sell recommendation and maintaining a sell stance on UOB, while still recommending a buy for DBS. Share prices reflected the shift, with OCBC down 8.4% for the week, DBS falling 5%, and UOB slipping 7.3%, contributing to a 4.1% weekly decline in one outlet Index.

The banks have delivered strong total returns this year, but their valuations remain high, with DBS trading near three times its June 30 net asset value and OCBC and UOB at 2.1 and 1.3 times respectively. Share buyback activity has slowed for DBS and OCBC, whereas UOB continues regular repurchases. The broader sell-off mirrors declines in global bank stocks amid concerns that higher rates could raise funding costs and erode bond-portfolio values.