SG banks face earnings pressure amidst margin and wealth income concerns

Higher bond yields could also weigh on REIT financing costs.

Singapore banks face pressure on earnings as concerns grow over lending margins and whether strong wealth-management income can be sustained.

“Higher global bond yields do not automatically translate into better bank profitability,” said Charu Chanana, Chief Investment Strategist at Saxo.

She said deposit costs, loan pricing, and Singapore-dollar interest rates will be key factors affecting banks' lending margins.

Concerns over bank earnings have contributed to the recent decline in the Straits Times Index, with banks leading the sell-off.

Chanana noted strong trading and wealth-related revenue have supported bank earnings, but these income streams can fluctuate with market conditions, potentially weighing on future earnings growth.

She added that the upcoming earnings season would be important in assessing whether banks can sustain their profitability.

Beyond banking, higher bond yields are also drawing attention to financing conditions in the REIT sector.

According to Saxo, debt costs, refinancing requirements and distribution sustainability remain key factors to watch for REITs.

“Higher yields also make fixed-income investments more competitive against dividend-paying stocks, an important consideration for Singapore's income-oriented market,” Chanana said.

The group identified investment in power infrastructure, data centres, advanced manufacturing, and semiconductor-related activities as areas creating opportunities beyond the traditional banking and property sectors.