SINGAPORE (July 22): Singapore banks are expected to see a 6% to 8% y-o-y decline in earnings in 2Q20 on the back of lower net interest margins (NIMs), according to DBS Group Research.

This comes after the US Federal Reserve made two interest rate cuts in March in response to the economic impact brought by the novel coronavirus (Covid-19) pandemic, it says.

Already, loans have been repriced on lower benchmark rates during of the quarter, the brokerage notes.

As such, the banks are expected to register a “record quarterly decline” in net interest margins (NIMs) in the quarter.

The brokerage has forecast NIMs to drop 16 to 22 basis points q-o-q to near their all-time post-global financial crisis (GFC) low in 2Q20.

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The repricing effects could continue into 3Q20, warns DBS.

“We remain neutral on Singapore banks due to limited catalysts ahead of expected weak 2Q20 earnings,” DBS analyst Lim Rui Wen writes in a note dated July 21.

DBS has maintained its “hold” call on both Oversea-Chinese Banking Corp and United Overseas Bank, albeit with a higher target price of $9.30 and $20.90, respectively.

As at 10.07 am, OCBC was down 6 cents or 0.7% at $9.15 with 1.2 million shares changed hands.

UOB was down 16 cents or 0.8% at $20.54 with 754,300 shares changed hands.