Singapore banks' fixed-deposit promotions unlikely to spark price war

UOB, OCBC, and DBS are expected to report healthy Q3 results, said UOB Kay Hian.

Singapore banks' promotional fixed-deposit rates are unlikely to trigger a price war, as major lenders have sufficient funds to support their operations, according to UOB Kay Hian.

UOB and OCBC are offering interest rates of 1.7% on new 12-month fixed deposits in October, compared with DBS's 1.0% rate.

“We see these seasonal promotions as healthy competition and jostling for new customers willing to move their savings for better returns and not indicative of a system-wide funding shortage,” the brokerage said.

It also expects the country's major banks to report healthy third-quarter results.

UOB Kay Hian said Singapore's three major banks continue to hold substantial customer deposits relative to their outstanding loans.

As of June, DBS held $638b in deposits against $469b in loans, giving it a loan-to-deposit ratio of 73.5%. OCBC and UOB recorded ratios of 78.4% and 81.7%, respectively.

UOB Kay Hian said DBS is likely to be the least affected by competition for deposits, given its strong deposit base.

Meanwhile, it expects the one-month compounded Singapore Overnight Rate Average, a benchmark used to price some loans, to reach 1.4% by the end of the year.

The rate rose from 0.97% in April to 1.25% in the third quarter, with the brokerage expecting a continued gradual increase.