http://www.businesstimes.com.sg/sub/...04186,00.html?
Published September 16, 2010
Record low Sibor rate puts the squeeze on banks
Keen competition, property curbs add to pressure on interest income
By CONRAD TAN
(SINGAPORE) SINGAPORE Interbank rates have dropped to the lowest level on record, threatening to further squeeze banks' income from lending here.
The benchmark Singapore interbank offered rate for three-month Singapore-dollar loans, or Sibor, was quoted at 0.51889 per cent on Monday - the lowest in at least 23 years - and has stayed there since.
That's down from 0.52236 per cent last Thursday, before the Hari Raya Puasa public holiday, according to Bloomberg data.
Sibor, which is used as a benchmark for pricing many Sing-dollar bank loans, hasn't dipped below the current level since at least July 1987, the earliest date for which data is available from the Monetary Authority of Singapore.
The lower Sibor spells more trouble for Singapore banks, which have been struggling to boost lending income amid heightened competition that is squeezing loan margins.
Persistently low interest rates have restricted how much banks can charge on new loans, while renewed competition among banks - local and foreign - has made their lending less profitable.
Net interest margins at all three Singapore banks shrank in the second quarter, compared with the preceding quarter and the same period last year.
'The pressure on banks' net interest income will be sustained,' said Kenneth Ng, head of research at CIMB.
Besides the pressure from the low Sibor, corporate loan margins are being squeezed because of keen competition. Some companies are borrowing directly from big investors by selling bonds instead of tapping bank loans, which has put even more pressure on loan margins.
Sibor has stayed well below one per cent since January 2009. After hovering at around 0.65-0.70 per cent for more than a year, it plunged in April this year, after MAS nudged the Sing-dollar higher with its monetary policy statement that month.
With the banks' net interest income from lending likely to stay weak, the outlook for revenue growth in the next few months is poor, Mr Ng said. 'But that's very much expected in the market.'
And the government's recent measures to cool the property market are likely to add to the banks' troubles, said Magdalene Choong, an analyst at Phillip Securities, who downgraded her view on the banking sector earlier this month to 'neutral' from 'cautiously optimistic'.
'The banks won't be able to expand their loan books as rapidly as before, so that will further hit their earnings,' she said.
The boost from trading gains earlier this year as financial markets rebounded has also worn off.
That leaves just fees and commissions from wealth management, stock broking and other activities - which is a fraction of the banks' overall income, Ms Choong said. 'The fee income isn't growing fast enough to fill the gap left by the declining net interest income and the trading income.'
Reply With Quote
