Analysts 'bewildered' about weak correlation of DBS' NIMs to credit spreads

Weak NIMs despite a large pool of cheap deposits is also a concern.

Consensus believes that DBS’s NIMs will expand from higher interest rates, aided by low funding costs from its large CASA deposits (60% of total deposits). Maybank Kim Eng's quantitative analysis validates this; in the scenario of a 50 bps increase in SIBOR and 50 bps wider credit spread, NIMs may expand by 8.7-11.9 bps. But DBS is not the largest beneficiary in this scenario.

"We are bewildered about the weak correlation of DBS’s NIMs to credit spreads. The structurally weaker NIMs compared to UOB’s, despite a large pool of cheap deposits, adds to the concern. While the margin outlook may be stable, the lending landscape is challenging," adds Maybank Kim Eng.

Maybank Kim Eng adds that DBS has the biggest USD exposure among Singapore banks (USD loans comprise ~32% of total loans). It is also most vulnerable to a sharp drop in securities prices. "Our recent stress test concludes that DBS’s may be most severely impacted under our adverse stress test scenario."