The Smart Investor
    Facebook Instagram
    Monday, January 30
    Facebook Instagram LinkedIn
    The Smart Investor
    • Home
    • About
      • About Us
      • Careers
    • Smart Investing
      • Getting Started
      • Investing Strategy
      • Smart Analysis
      • Smart Reads
    • Special Free Reports!
    • As Featured on BT
    • Our Services
      • Our Services
      • Subscribe now!
    • Login
    • Cart
    The Smart Investor
    Home»Blue Chips»Can the 3 Singapore Banks’ Share Prices Scale New All-Time Highs?
    Blue Chips

    Can the 3 Singapore Banks’ Share Prices Scale New All-Time Highs?

    The local banks are riding high on interest rate hikes.
    Royston YangBy Royston YangNovember 28, 20225 Mins Read
    Facebook Twitter LinkedIn Email WhatsApp
    Singapore
    Share
    Facebook Twitter LinkedIn Email WhatsApp

    Singapore’s three banks have been enjoying a roaring good time.

    The trio reported record net profits during the recent fiscal 2022’s third quarter (3Q2022) earnings.

    United Overseas Bank Ltd (SGX: U11), or UOB, saw its net profit jump 34% year on year to S$1.4 billion.

    DBS Group (SGX: D05), being the next to announce its earnings, posted a record net profit of S$2.2 billion.

    Not to be outdone, OCBC Ltd (SGX: O39) chalked up a net profit of S$1.6 billion for 3Q2022, the highest in its history.

    Despite the stellar performance, the share prices of all three banks have yet to surpass their all-time highs.

    Looking ahead, investors may be curious to know if the share prices for all three banks can scale new heights.

    Let’s dig deeper to see if this could happen.

    Not quite there yet

    DBS is hovering at around S$35, around 6.7% off its all-time high of S$37.50.

    UOB and OCBC are a bit further off from their record highs compared with Singapore’s largest lender.

    OCBC is trading 8.9% below its record-high of S$13.54 while UOB’s share price is 9.2% lower than its all-time high of S$33.33.

    Incidentally, these highs were all achieved earlier this year in February after news broke of the US Federal Reserve’s intention to raise interest rates to combat decades-high inflation.

    Inflation in the US was already creeping higher back in April 2021 at 4.2%. 

    The gauge of consumer prices broke past 6% in October last year and hit 7.9% in February, prompting the central bank to make its first move to raise interest rates in March.

    A wave of higher NIMs

    To understand why the banks touched an all-time high earlier this year, it’s necessary to understand the impact of higher interest rates on their business.

    Simply put, a rise in overall interest rates allows banks to loan out money at higher rates.

    As it takes time for deposit rates to catch up, the banks will then benefit from higher net interest margins (NIMs).

    We saw this phenomenon in 3Q2022.

    OCBC took the trophy with a NIM of 2.06%, while DBS and UOB reported a NIM of 1.9% and 1.95%, respectively.

    Note that these NIMs were significantly higher than a year ago when the average NIM across the three banks was just 1.5%.

    All three banks have also quantified the effects of a higher NIM on their net interest income (NII).

    For every percentage point increase in benchmark interest rates, DBS, UOB and OCBC will enjoy a 22.5%, 9.4% and 11.9% uplift to their 2021 NII, respectively.

    The good news for the lenders is that the US Federal Reserve is not done yet.

    It still plans to continue raising interest rates well into 2023, albeit at smaller magnitudes than the four consecutive “jumbo” hikes of 0.75 percentage points each.

    Earnings to head higher

    The consensus seems to be that the banks will continue reporting sparkling sets of financial numbers in tandem with the continued rise in interest rates.

    DBS expects its NIM to reach 2.25% by the middle of next year while OCBC reported that its fourth-quarter NIM was already above 2.1%.

    And as markets slowly recover from the wave of pessimism, fund flows should also start trickling in, benefitting the banks’ asset and wealth management arms.

    Fee income could witness a rebound and help to further boost bank earnings as we head into 2023.

    Macroeconomic risks to be wary of

    Share prices have a habit of tracking business performance.

    Therefore, should the three banks report higher profits in the quarters ahead, there is a good chance that their share prices could also charge ahead and surpass their previous all-time highs.

    That said, it’s important to note that macroeconomic risks continue to lurk.

    A recession could be on the cards and such an event will significantly crimp consumer demand, resulting in weaker or even negative loan growth.

    High inflation also poses a challenge for many businesses as consumers tighten their wallets and spend less.

    As companies face dwindling demand, they will also hold back from expanding their operations and delay adding capacity.

    High interest rates are no help here, pushing companies to be more conservative rather than binging on debt.

    There is a heightened risk of businesses facing financial difficulties.

    Should this happen, the banks may have to increase their provisions to account for potential bad loans.

    Investors need to balance the good with the bad and be prepared to monitor the banks to see how things pan out.

    In our special FREE report, Top 9 Dividend Stocks for 2022 – and 3 Tactical Shifts to Maximise Your Profits, we’re revealing 3 special categories of stocks that are poised to deliver maximum growth in 2022 and beyond. 

    Our safe-harbour stocks are a set of blue-chip companies that have been able to hold their own and deliver steady dividends. Growth accelerators stocks are enterprising businesses poised to continue their growth.  And finally, the pandemic surprises are the unexpected winners of the pandemic. 

    Download for free to find out which are our safe-harbour stocks, growth accelerators, and pandemic winners! CLICK HERE to find out now! 

    Follow us on Facebook and Telegram for the latest investing news and analyses!

    Disclaimer: Royston Yang owns shares of DBS Group.

    Yahoo
    Share. Facebook Twitter LinkedIn Email WhatsApp

    Related Posts

    Data Centre (Sunlight)

    5 Key Takeaways from Mapletree Industrial Trust’s Latest Business Update

    January 30, 2023
    Screen Showing Share Prices

    Get Smart: Why You Shouldn’t Focus on Share Prices Alone

    January 29, 2023

    Top Stock Market Highlights of the Week: Frasers Property Limited, Frasers Centrepoint Trust and China’s Reopening

    January 28, 2023
    Facebook Instagram LinkedIn Telegram
    • Careers
    • Disclaimer & Privacy Policy
    • Subscription Terms of Service
    © 2023 The Smart Investor. All Rights Reserved. The Smart Investor, thesmartinvestor.com.sg, an investment education website managed by The Investing Hustle Pte Ltd (Company Reg No. 201933459Z) is not licensed or otherwise regulated by the Monetary Authority of Singapore, and in particular, is not licensed or regulated to carry on business in providing any financial advisory service. Accordingly, any information provided on this site is meant purely for informational and investor educational purposes and should not be relied upon as financial advice. No information is presented with the intention to induce any reader to buy, sell, or hold a particular investment product or class of investment products. Rather, the information is presented for the purpose and intentions of educating readers on matters relating to financial literacy and investor education. Accordingly, any statement of opinion on this site is wholly generic and not tailored to take into account the personal needs and unique circumstances of any reader. The Smart Investor does not recommend any particular course of action in relation to any investment product or class of investment products. Readers are encouraged to exercise their own judgment and have regard to their own personal needs and circumstances before making any investment decision, and not rely on any statement of opinion that may be found on this site.

    Type above and press Enter to search. Press Esc to cancel.