Economic uncertainty and the ongoing U.S.-China trade war are expected to weigh on Singapore's banking sector
Brokerage firm CGS-CIMB has downgraded three local banks – DBS, UOB and OCBC – from Overweight to Neutral over concerns that the strong performance of the banks in the first quarter of the year would be difficult to repeat in the second quarter, the firm said in a note on Wednesday.
A strong capital market brought record trading incomes for the banks in the first quarter, but CGS-CIMB pointed to difficulties they would likely face in increasing their net interest margins as the effects of repricing mortgage rates higher begins to taper and as the yield curve flattens.
Trade War to Weigh on Banks
In particular, looming interest rate cuts by the U.S. Federal Reserve, property cooling measures in Singapore and the escalating U.S.-China trade war could slow loan growth, CGS-CIMB said.
«We think an escalation in U.S.-China trade war retaliations could affect DBS the most given its 30 percent loan book exposure to Greater China/Hong Kong (highest amongst Singapore banks),» the note said.
The firm expects this uncertainty to affect Singapore's growth forecast and corporate earnings, with risks for earnings cuts in all sectors except healthcare, property and technology.
