Stronger local currency squeezes Singapore banks' NIMs in 2Q16

Average net interest margin was at 1.74%.

The three Singapore bank giants have registered an average net interest margin (NIM) of 1.74% this second quarter, a partial dip from the recorded 1.79% the previous quarter.

The NIM is a measure of profitability which computes the difference between the interest income generated by firms and the amount of interest paid out to their lenders relative to the amount of their interest-earning assets.

A report by SGX explained that a stronger local currency has put pressure on domestic interbank rates, with the three-month Singapore Interbank Rate (SIBOR) falling nearly 40 basis points from its peak in the previous months.

"As banks price their domestic loans largely on interbank borrowing costs, this has started squeezing their net interest margins," SGX said.

Out of the three banks, only DBS recorded an improvement in NIM, albeit only slightly, from 1.85% in first quarter to 1.87%.

OCBC's NIM fell from 1.75% last quarter to 1.68%.

Meanwhile, UOB's 1.78% NIM for the first quarter dropped to 1.68%.

Looking forward, DBS CFO Chng Sok Hui remained hopeful that the full-year 2016 NIM would be higher than 2015's 1.77.