CFA Society Singapore
SINGAPORE (Apr 4): RHB likes UOB given its strong balance sheet and year-to-date share price underperformance compared to the other two banks.
Singapore interest rates have risen over the month of March. The three-month SIBOR recently rose to 1.51% from 1.37% while SGD fixed deposit rates from Singapore banks also rose 17-30 bps.
This would be positive overall for the Net Interest Margins (NIM) of banks, says analyst Leng Seng Choon in a Wednesday report.
The Monetary Authority of Singapore is scheduled to announce its next Monetary Policy Statement (MPS) next week.
Market expectations are for Singapore's de facto central bank to signal a stronger currency at the April policy review.
"Our RHB house view is for MAS to keep an unchanged neutral policy stance at the coming April MPS," says Leng.
If MAS tightens, Leng says SIBOR may see some short-term weakness, and NIM widening of Singapore banks may take place at a slower pace. However, if MAS maintains a neutral stance, NIM widening may quicken.
But even if MAS maintains a neutral stance this month, Leng says MAS's commentary is likely to sustain market expectations of possible tightening ahead.
"Recall that at the last MPS in Oct 2017, MAS maintained the rate of appreciation of the Singapore dollar nominal effective exchange rate (S$NEER) policy band at zero percent," says Leng.
RHB has a target price of $30.00 for UOB.
Shares in the counter closed 68 cents lower at $26.28 or 11.4 times FY18 earnings.