Singapore banks' net interest margin to spike in 2015

But it'll still stay below the 16-year average.

According to Maybank Kim Eng, after four consecutive years of consistent decline, it expects NIM to stay depressed throughout the course of 2014, before strengthening starting from 2015. Despite the uptick, the industry NIM over the next three years is still expected to stay below the 16-year average.

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End of a depressed interest rate environment? With a higher probability of a tapering of quantitative easing sometime in 2014, higher interest rate could be on the cards. If realised, this should arrest a persistent decline in industry NIM, which currently hovers at historic lows as shown in Figure 26.

No rate bounce expected until early 2015. Over the next six quarters, we expect three-month SGD SIBOR to move within a tight range of 0.4-0.5% before showing signs of life in 2Q15. We project Singapore dollar SIBOR to reach 1.00% at end-2015, and 2.00% at end-2016.

A rising interest rate environment is positive for Singapore banks given their liquid balance sheets and strong deposit franchises. When interest rate rises, there will be more gaping opportunities as the yield curve steepens.

A steepening of the yield curve allows banks to enhance interest income by taking advantage of the difference between the short and the long end of the yield curve.