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4 Reasons To Be Bullish About Bank Stocks In 2018

Singapore’s three biggest banks performed admirably last year. A strong loan market and greater net interest margins were drivers of their strong performance. On top of that, the partial recovery of the oil and gas sector was also beneficial to banks.

With the start of the new year, the biggest question on investors’ minds would be whether this strong performance can continue? To answer that, I would like to point out four reasons that I believe banks can continue to perform well in 2018.

Strong regional economy and GDP growth

South East Asia’s economic growth accelerated to 5% last year, a respectable level of growth. Analysts expect more of the same in 2018, with most forecasting the region’s growth to keep pace with last year.

This can only be good news for the financial institutions that will thrive in the greater loan market and lower occurrence of non-performing loans as clients have the financial muscle to pay off their dues. 

Singapore property market set to rebound

The property market in Singapore is expected to finally pick up. There have already been signs of a pick up towards the end of last year as en bloc sales market grew and property prices finally stabilised after 13 straight quarters of decline.

Experts in this area expect the property market in Singapore to grow by 3-15%. This growth in the property market will be the driver for a larger home loan market this year.

Net interest margin expected to widen

The recent spike in the three-month Singapore inter-bank offered rate (more commonly known as SIBOR) is likely to widen interest margins for banks this year. Add to the fact that the amount of loans is expected to grow this year; the higher interest margin will have a multiplier effect on the income of banks.

Government initiatives

Government initiatives like China’s belt and road project are expected to create a need for capital input. Singapore, being a stable financial hub, can support the project through capital input and investments.

The three major lenders in Singapore are also in prime position to benefit, as they have a good relationship with China, and Singapore is one of the largest offshore stores of Chinese yuan.

The Foolish bottom line

Banks in Singapore performed well last year, but there is perhaps even more to come. There are catalysts in place that bode well for banks as the year unfolds.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.