SINGAPORE: Shares of Singapore’s three local banks are already at their lowest in more than seven months, but growing concerns over trade tariffs could mean further share price volatility ahead, analysts said.
Citing the possibility of higher credit risk alongside weaker loan demand and earnings, several market analysts have downgraded their outlook for the local banking trio and cut target prices in recent days.
The three local banks have chalked up double-digit declines since United States President Donald Trump announced sweeping tariffs on dozens of countries a week ago, sparking fears of a global trade war and recession.
The latest retaliatory move by China to impose 84 per cent tariffs on US goods from Thursday (Apr 10) will add to these fears.
DBS, which finished at S$37.16 on Wednesday, has plunged 19 per cent since the tariffs were first made on Apr 2.
OCBC, last seen at S$14.42, lost 16 per cent over the past five trading sessions, while UOB’s closing price of S$30.99 on Wednesday marked a slump of 18 per cent.
Altogether, the three local lenders have shed about S$48.8 billion in market value since Apr 2, based on CNA's calculations.
However, those declines may see some reversals after President Trump announced a 90-day pause in tariffs for most countries on Wednesday, in a move which saw share prices surging on Wall Street.
While banks may not be directly exposed to the tariffs, they will feel the impact through slower economic growth, trade and business activities, analysts said.
When growth slows, companies are likely to turn cautious about spending and taking loans. The same goes for the average consumer. Borrowers could also fall behind on payments – all of which is not good news for banks.
The tariffs and the potential chilling effect on global trade and growth are especially hurtful for Asia’s manufacturing and export-oriented economies. The region also bears the brunt of the higher US tariffs, with rates ranging from 18 per cent to 49 per cent.
“The slowdown in intra-regional trade triggered by reciprocal tariffs will reverberate across supply chains in the region,” said UOB Kay Hian, adding that the manufacturing sector may be in for “turmoil and job losses”.
Given their exposure to the region, the Singapore banks will feel the heat in terms of lower loan growth and higher credit costs due to non-performing loans, the brokerage added.
Also expecting gloomier growth prospects for Singapore and the region, Macquarie Equity Research’s analyst Jayden Vantarakis said UOB appears to be most at risk given the bank’s higher reliance on trade finance.
Expectations for more aggressive rate cuts by the US Federal Reserve are also bad news for the banking sector, whose net interest margins and overall profitability have been boosted by high interest rates in recent years.
“While still unclear, potential Fed rate cuts could compress net interest margins faster than anticipated,” said Maybank analyst Thilan Wickramasinghe.
Meanwhile, wealth management, a key driver of non-interest income for all three banks of late, may also be hit if heightened market uncertainties keep investors on the sidelines.
Mr Vantarakis, for one, expects banks to see “stalling growth” of 0 per cent to 5 per cent for their wealth franchises amid higher market risks.
Collectively, slower loan growth, declining net interest margins and more muted wealth management fees point to “downside earnings risks” ahead, said DBS Group Research.
Amid the gloomy outlook, UOB Kay Hian downgraded the Singapore banking sector to “underweight” this week.
It also re-rated the two banks under its coverage – DBS was downgraded to “sell” with a cut in target price from S$49.80 to S$40, while OCBC was downgraded to “hold” and its target price slashed from S$21.10 to S$16.85.
Citing concerns over the “potential sequential impact from an escalating trade war environment”, DBS analysts on Tuesday downgraded UOB from “buy” to “hold” and maintained a “hold” rating on OCBC.
Target prices were also revised lower, with UOB’s slashed from S$38.50 to S$32.70 and OCBC’s lowered from S$17.60 to S$14.40.
That said, some support for the battered stocks could come in the form of share buyback programmes announced by the banks previously, said OCBC Investment Research’s Singapore strategist Carmen Lee.
Some banks have begun capitalising on recent market pullbacks to carry out share buybacks, based on recent bourse filings.
For instance, DBS spent S$119.17 million to buy back some three million shares from Apr 4 to Apr 9.
There are also analysts who see the latest pullback as a possible buying opportunity. Tiger Brokers’ market strategist James Ooi, for one, said the valuations of the local banking stocks are now “starting to look more attractive to bargain hunters”.
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