Massive NIM expansion backs increase of DPS in 2023: analyst

DBS, OCBC, and UOB posted expansion in the second quarter (Q2) of 2022.

Banks registering massive net interest margin (NIM) expansion will boost the deposit plus scheme (DPS) next year, UOB KayHian said.

In its brokerage report on banks in the Lion City, DBS, OCBC, and UOB posted a NIM expansion of 12 basis points (bp), 16 bp, 9 bp quarter-on-quarter, respectively in the Q2 2022.

“The accelerated pace of NIM expansion and increased sensitivity to higher interest rates are a pleasant surprise,” read the report.

Aside from the NIM expansion, banks also heightened their funding franchise with DBS, OCBC and UOB improving their current and savings account ratio.

With these factors, UOB KayHian sees that DBS and OCBC will raise their DPS by 17% and 7%, respectively to $1.68 and $0.60 in 2023.

Currently, banks are gaining bargaining power as liquidity is tightened on the back of higher interest rates and quantitative tightening.

These banks benefit from NIM expansion with DBS being the most sensitive to higher interest rates.

Russia-Ukraine conflict poses elevated inflation, which could “keep bond yields higher for longer."

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