As the market consensus skews towards a delay in a Federal Funds rate hike, some banks are responding with fixed rate mortgages, noted RHB Research in a report dated 11 September 2017.
RHB Research also pointed out that the Singapore Interbank Offer Rate (SIBOR) will most likely not rise anytime soon too.
When the market was anticipating a rate hike in the coming months, most research analysts, including RHB Research, were quite bullish on DBS.
However, with the recent turn of events, that might change drastically. RHB Research estimates, “DBS’s total return to share holders of 21.7% year-to-date could be at risk”.
As of 11 September 2017, RHB Research now prefers UOB over the other two local listed banks, mainly because of its stronger balance sheet.
Mortgage war among banks
UOB and HSBC just launched three-year fixed rate packages to compete for marketing share with DBS, which already started its own.
UOB’s move might expand its leading share in the housing loan market, which is currently at 27.6%. OCBC is slightly trailing behind UOB at 26.7% while DBS’s share is only at 21.1%.
UOB’s fixed mortgage loan rate of 1.68% is higher than the three-month SIBOR of 1.12% while the ten-year Singapore sovereign bond yield is at 1.94%.
Nevertheless, RHB Research points out that home mortgages are less likely to face nonperforming loans as compared to business loans, justifying the lower yield for UOB’s fixed mortgage loan rate.
DBS will receive impact from rate hike delay
Previously, research analysts expected DBS to recover from the past few months of lacklustre performance, anticipating a Fed rate hike.
As the oil and gas (O&G) sector continues to be a drag, the Fed rate hike delay might cause DBS’s share price to underperform, in RHB Research’s view.
With the above in mind, RHB Research gave DBS and OCBC NEUTRAL calls while UOB Limited (SGX: U11) received a BUY call with a target price of $26.50.