SINGAPORE (Oct 14): Maybank Kim Eng has made a sharp reversal on its call on Singapore banks. In an Oct 14 report, the brokerage downgraded its call on the sector from “overweight” to “underweight”, as potentially fatter interest margins will be offset by higher chances of delinquent customers.

Maybank Kim Eng’s latest call is based on its own tests on sensitivity of banks customers’ net interest margins (NIM) to repricing risks, credit risks and yield-curve risks form firmer interest rates. The brokerage also tested interbank NIMs against the spread of the SIBOR and the LIBOR.

Specifically, DBS, widely seen as the biggest beneficiary of rising rates among the three because of its largest deposit base, is now rated a “sell” with a target price of $15.90; OCBC, similarly, is a “sell” with a target price of $8.50.

UOB, meanwhile, is deemed “hold”, worth $21. “Its assets and liabilities appear to be the most prudently managed, allowing it to book the highest NIM among the three banks. Its ability to pass on pricing increases in an adverse lending environment is an important element of its franchise, in our view,” states Maybank Kim Eng.

Maybank Kim Eng sought comments from the banks themselves on their NIMs for Q3FY15. “All are tight-lipped and conservative, as usual. DBS expects ‘NIMs to be stable, assuming Singapore interest rates are stable. If Singapore’s interest rates increase, there could be upside to NIMs.’ OCBC replied ‘stable’ while UOB offered ‘won’t be exciting’.”

Maybank Kim Eng observes that its latest call is contrary to most of its peers. Some 85% of the analysts polled by Bloomberg now recommend a Buy on DBS, 74% a Buy on OCBC and 41% a Buy on UOB. Some 48% recommend a Hold on UOB. Sell recommendations are few and far between, which is understandable since this sector is one of the few bright spots for Singapore equities,” the brokerage states.

As at 10am, amid a slightly positive overall market, DBS shares were down three cents to $17.48; OCBC flat at $9.28; while UOB was down two cents to $19.88.