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Singapore interest rates rose for the second consecutive month, with June’s 3M-SORA up 1bp MoM to 1.07%, and fell by 109bps YoY, the smallest YoY decline in 15 months. Singapore loan growth continued to surge (Jun26: +8.7% YoY), and we expect a potential increase in prior guidance to low- to mid-single digits. CASA rose 15% YoY, and CASA ratio to deposits rose to 20.7% (Apr26: 20.5%), the highest since Nov 2022 and a tailwind for banks, lowering funding costs and cushioning NIM compression.
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Upgrade to ACCUMULATE from Neutral. We upgrade the sector as loan growth is rising faster than expected, SORA begins to bottom out after two consecutive monthly increases, and the Fed turns more hawkish, with its June projections signalling a possible hike this year and no cuts in 2026, a NIM-supportive backdrop. The US-Iran ceasefire collapsed in early July, with renewed strikes lifting oil prices and keeping markets volatile. That volatility continues to benefit capital markets income and WM fees, a meaningful offset to NII headwinds. Banks’ dividend yields remain attractive at 4.1%, with ongoing buybacks improving ROE. We prefer DBS (fixed dividend policy with a 1Q26 guidance upgrade) and OCBC (WM growth and excess capital). We raise our target prices for all three banks: DBS: S$76.00 (prev. S$67.50), OCBC: S$28.50 (prev. S$24.00), UOB: S$43.00 (prev. S$39.00), as we raise our loan growth and earnings estimates by 5%.
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