Chart of the Day: DBS better positioned for interest rate hike

Owing to its superior funding structure.

Bank margins in Singapore are at their lowest level in five years, and higher interest rates will widen margins and improve pre-provision profitability, with DBS set to benefit the most.

According to a report by Moody’s Investor Service, higher interest rates in the US and Singapore will have a greater positive effect on DBS's earnings, owing to its superior funding structure.

Moody’s says that DBS has a lower cost of funding owing to a higher share of low-yielding customer deposits. This will lead to reduced upward pressure on its funding costs in a rising interest rate environment. Among the peer group, DBS has the highest share of current accounts and saving accounts in total deposits, owing to its superior market share in consumer deposits and larger branch network in Singapore. This competitive advantage traces back in part to 1998, when DBS acquired Post Office Saving Bank (unrated) in Singapore.

Here’s more from Moody’s:

DBS's higher-quality funding base is beneficial for its liquidity coverage ratios (LCRs). DBS reported a very high SGD LCR of 424% as of 31 March 2015, higher than 273% at OCBC. DBS's all-currency LCR was also stronger at 131%, compared to 117% at OCBC. UOB has not reported its LCRs, however these ratios are above 100% according to the bank. The Monetary Authority of Singapore requires large banks to comply with a 100% SGD LCR and 60% all-currency LCR from 1 January 2015; the latter increases by 10% every year until it reaches 100% on 1 January 2019.

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