• October 3M-SORA/3M-SIBOR was up by 44bps/78bps MoM to 2.28%/3.63%, the highest MoM increase since 1998.
• In the 3Q22 results, banks’ NII rose 42% YoY as NIM improved by 47bps with loans growth of 6%. Fee income was a drag, declining 14%. Banks raised their FY22e NIM guidance.
• Singapore domestic loans grew 4.38% YoY in September, tracking our estimates, while Hong Kong’s domestic loans declined 1.81% YoY in September.
• Maintain OVERWEIGHT. We remain positive on banks. Bank dividend yields are attractive at 5% with upside surprise due to excess capital ratios. We expect bank NIM to rise another 34bps in 4Q22. SGX is another beneficiary of higher interest rates [SGX SP, BUY, TP S$11.71].

3M-SOR and 3M-SIBOR continued to climb in October

Interest rates continued to increase in October. The 3M-SORA was up 44bps MoM to 2.28%, while the 3M-SIBOR was up 78bps MoM to 3.63%. The SORA MoM increase was the highest on record while the SIBOR MoM increase was the highest since 1998. The 3M-SORA is 83bps higher than its 3Q22 average of 1.45% and has improved by 213bps YoY. The 3M-SIBOR is 115bps higher than its 3Q22 average of 2.48% and has improved by 320bps YoY (Figure 1).

Figure 1: Interest rates reached new highs in October

Source: Bloomberg, PSR

3Q22 RESULTS HIGHLIGHTS

1. NII and NIM surge

DBS’ 3Q22 earnings of S$2.24bn were in line with our estimates, and 9M22 PATMI was at 77% of our FY22e forecast. 3Q22 DPS was up 9% YoY at 36 cents. NII surged 44% YoY to S$3bn on NIM expansion of 47bps to 1.90% and loan growth of 6% YoY. NIM improvement was mainly due to the rising interest rates as the impact of interest rate hikes was more fully felt. Management maintained NIM guidance of 1.75% for FY22e and targets to reach 2% by 4Q22.

OCBC’s 3Q22 earnings of S$1.61bn were in line from higher net interest margin and net interest income offset by lower fee income. 9M22 PATMI was 73% of our FY22e forecast. NII grew 44% YoY underpinned by loan growth of 6% YoY and NIM surging 54bps YoY to 2.06%. NIM expansion was mainly due to asset yields outpacing higher funding costs amid a rapidly rising interest rate environment. OCBC has guided for similar mid-single digit loan growth and NIM of 1.80-1.90% (from 1.70%) for FY22e. 

UOB’s 3Q22 earnings of S$1,403mn were in line with our estimates due to higher net interest margin (NIM) and healthy net interest income (NII) growth. 9M22 PATMI was 72% of our FY22e forecast. NII was up 39% YoY from a NIM increase of 40bps YoY to 1.95% and loan growth of 6% YoY. UOB guided NIM to continue to expand each quarter and to reach an exit NIM of 2.5% to 3.0% by the end of 2022. We estimate 4Q22 NII to jump 65% YoY. Management guided for ROE of 13% in FY23 and 14% for FY24 from this year’s 11%.