Singapore banks poised to benefit from rising interest rates

Singaporean banks are positioned to benefit from rising Singapore dollar interest rates. Macquarie Equity Research identifies United Overseas Bank (UOB) as having the highest upside potential among local lenders due to its significant valuation discount and high leverage to Singapore dollar rates. UOB currently has 43 per cent of its loans in SGD and derives 66 per cent of its revenue from net interest income.

While Macquarie maintains an ‘outperform’ rating for all three major local banks, it ranks UOB highest, followed by DBS and OCBC. DBS is noted for its return on equity exceeding 18 per cent and strong capital management. OCBC is highlighted for positive momentum within its wealth management franchises.

Market analysts note that the three-month compounded Singapore Overnight Rate Average has risen from 1 per cent at the start of the year to approximately 1.4 per cent as of late September, with further increases expected through 2027. Despite the positive outlook, investors are cautioned regarding the cyclical nature of bank stocks and the potential for confirmation bias when using AI to evaluate high-valuation assets like DBS.