Local lending rates dipped in May
Interest rates reversed their gains in the last four months to dip in May, with 3M-SIBOR and 3M-SOR falling to 0.44% and 0.23% respectively. Current 3M-SIBOR is 2bps higher than the 1Q21 average of 0.26%. 3M-SOR is 2 bps lower its 1Q21 average of 0.42% (Figure 1).
NPLs stable as loans under moratorum start to decline
As the blanket loan moratorium in Singapore rolled off at the end of 2020, loans under moratorium across the banks have started to decline. Moratorium loans for DBS and OCBC declined from about 3% and 4% respectively as at end-Dec 2020 to 1% and 2% in 1Q21. UOB’s loans under government relief, bank relief and ESG loan schemes are 90% collateralised. They made up 5% of its loan book in 1Q21, down from 9% in December 2020. As more loans unwind from moratorium for the rest of 2021, we expect NPL ratios to stay stable.
NIMs stabilised with potential for GP reversions for rest of 2021
Banks’ NIMs stabilised in 1Q21, with loans growth rebounding marginally and net interest income up 1% on average. For FY21e, we expect loans growth to average 5%. Net fees and commissions grew the most, led by wealth-management and card-related fees.
In view of the improving economic outlook, the banks eased GPs during the quarter. DBS reversed S$190mn of provisions made in prior quarters (Figure 2). For the rest of 2021, the banks have guided for an easing of credit costs. With total allowance coverage over 30% above MAS’ regulatory limit, we believe there is further room for GP reversions in 2021.
Terence specialises in the consumer, conglomerate and industrials sector. He has over five years of experience as an analyst in the buy- and sell-side. As an institutional fund management analyst, he sat on the China-Hong Kong desk. Terence was ranked top 3 for Best Analyst under the small caps and energy category in the Asia Money poll 2018.
He graduated from the Singapore Management University with a major in Finance (Honours), and is the honoured recipient of the CFA scholarship.
