Singapore banks grappling with stiffer competition for deposits

Will the fixed deposit war continue?

According to CIMB, in 4Q13-1Q14, a fixed deposit war erupted as Singapore banks scrambled to build up their liquidity coverage ratios (LCRs) in anticipation of rising demand for trade finance loans. The banks guided for funding costs to rise in FY15, especially if they compete in the S$ and fixed deposit space.

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Concerns over rising exposure to China. Concerns this quarter centred on the banks' growing exposure to China given recent fears over China's shadow banking sector.

While the banks clarified that they are not exposed to shadow banking as most of their China loans come from trade finance and lending to top-tier corporates based in Hong Kong, their China exposure remains a drag, which may favour UOB over DBS and OCBC due to its smaller proportion of Greater China loans.