Singapore bank stocks rocked by global money woes

Analysts note pressure on net interest margins, weakening loan growth
Singapore | Updated today at 06:00 AM
By Jonathan Kwok

Singapore lenders have not been spared the damage meted out to global banks over the past few weeks of share market carnage.

DBS Group Holdings has fallen from a recent closing high of $15.58 to $12.70 in little over a month, its lowest levels since October 2009.

United Overseas Bank had tumbled from its recent peak of $20.90 to $17.64 two weeks back - its lowest close since November 2009 - though the stock has since rebounded to $17.72 yesterday.

OCBC Bank has hit $8.50 - its lowest since June last year - several times in recent weeks, including yesterday.

Analysts agree that the local banks have been dragged down by weakness in overseas banking stocks and worries over the general economy.

Banks are seen as bellwether stocks and tend to get sold down when there are fears of a recession.

Institutional investors like unit trusts or pension funds may also have been selling their bank holdings either to pay off their losses in other investments or because their clients want out of the funds.

The news from financial sectors overseas has also been far from encouraging.

There are signs that some European lenders are being shut out of money markets, raising fears that inter-bank lending will freeze up as it did in 2008.

The cost of insuring bank and government debt has hit record highs amid fears that the continent's lenders are exposed to the debt of peripheral euro-zone countries.

Investor confidence has also been shaken by news last Friday that the United States government is suing 17 financial firms for selling mortgage-backed securities that imploded in the financial crisis.

The lawsuits affect US lenders Bank of America and Citigroup, and European banks Royal Bank of Scotland, Barclays Bank and Credit Suisse, among others.

Shares of these banks have fallen between 30 per cent and 40 per cent since late July, and some European banks have fared even worse. For instance, Societe Generale's shares are now about half their value at July.

While Singapore banks' problems are not on the same scale as those in the US or Europe, they still face challenges.

A recent CIMB note highlighted that the local banks' loan growth is losing strength, while there is pressure on their net interest margins.

It said the outlook for net interest margins is 'not so rosy', with funding costs escalating.

But CIMB maintained its 'overweight' call on Singapore banks, saying they are best equipped to weather any deterioration in asset quality or any recession.

Amid this, Nomura Equity Research on Monday mooted the idea of a merger between DBS and OCBC.

'With the global economy, in our view, set to face a prolonged period of sluggish growth, and regional competitors distracted by balance sheet and domestic market concerns, the timing for a possible DBS-OCBC merger appears opportune,' said the research house.

Nomura sees a 'good operational fit' between the two banks, and said the merged entity will provide a 'distinct, purely pan-Asian franchise'.

Stocks in other sectors have also fallen hard, including commodities counters hit by fears of plunging demand.

Wilmar International's shares have dropped 13 per cent from Aug 1's close to yesterday's $5.13, while Noble Group has fallen 22 per cent to $1.48 yesterday.

Among the rigbuilders, Sembcorp Marine is down 29 per cent since Aug 1's close, while Keppel Corp has lost 22 per cent.

jonkwok@sph.com.sg

Why the thrashing

Banks are seen as bellwether stocks and tend to get sold down when there are fears of a recession.
Institutional investors like unit trusts or pension funds may have been selling their bank holdings to pay off their losses in other investments or because their clients want out of the funds.
There are signs that some European lenders are being shut out of money markets, raising fears that inter-bank lending will freeze as it did in 2008.
The cost of insuring bank and government debt has hit record highs amid fears that the continent's lenders are exposed to the debt of peripheral euro-zone countries.
Investor confidence has also been shaken by news last Friday that the United States government is suing 17 financial firms for selling mortgage-backed securities that imploded in the financial crisis.

Ref:Straits times