Singapore banks have some scope to improve liability management: analyst

Banks are already working on lowering their liability cost.

Analysts at Maybank Kim Eng are optimistic that Singapore banks have some scope to improve their liability management.

"Closing the negative spread between SIBOR/LIBOR to customer cost of funds in recent months implies that banks are already taking steps to lower their liability cost. Despite a limited ability to reprice their loans, the latitude to manage liability cost may give them some breathing room to, at worst, maintain to modestly improve their margins," the firm said.

Here's more from Maybank Kim Eng:

Rising rates act as an incentive for depositors to park more funds in their deposit accounts. SGD LDR is currently at 80.7% for DBS and 88- 89% for OCBC and UOB. LDR is near the high, but not the highest level. We think the banks can tolerate LDR at 85-90%, with DBS having the highest scope for an increase.

A large proportion of CASA deposits imply sticky customer relationships. We think that lowering deposit rates or removing promotional rates will not hurt the pool of customer deposits too badly. We note that banks are no longer running aggressive FD promotional rates as compared to a year ago.

Major foreign banks in Singapore (i.e. Citibank, StanChart and HSBC) have SGD LDR at 80-90%. Their USD LDR are at 50-60%. We think they have turned more prudent in their lending practices and are therefore unlikely to compete aggressively for funds.

Having a larger proportion of CASA deposits also means that the banks have the flexibility to managing deposit costs.