Bank shares plummet amid race to cut rates

Investors are aggressively selling bank stocks as one central bank after another ratchet down their interest rates to kick-start the economy amid a global slowdown.

Very low rates, or negative rates in the case of Japan and Switzerland, may hurt banks as they make it hard for them to lend profitably.

There are also fears central banks could be conducting a "currency war" that could spiral into a race to the bottom on negative rates.

Even US Federal Reserve chair Janet Yellen said on Thursday that negative rates are not "off the table" for the US central bank.

The Fed is examining negative rates as a possible policy intervention if the US economy weakens.

Concerns over whether the banks could survive amid such low or negative rates have sparked the sharp sell-offs.

Large European banks have led the rout, with shares in Zurich-based Credit Suisse and Germany's Deutsche Bank down about 40 per cent so far this year.

France's Societe Generale took a hit on Thursday, tumbling 13 per cent after missing fourth-quarter earnings estimates.

British bank Standard Chartered also fell, declining 5.1 per cent to its lowest price since 1998.

US banks have taken a beating as well, with shares in investment bank JPMorgan Chase dropping to their lowest in more than two years.

JPMorgan chief executive Jamie Dimon went into the market to snap up 500,000 shares of the bank's stock on Thursday, paying US$26.6 million (S$37.1 million), according to a filing. The news lifted the stock price.

While Singapore banks have not been hit as as hard, they have also lost a huge chunk of their value since the start of the year.

Shares in DBS Group - the largest bank here - lost 22 per cent in the first six weeks of the year. The severe decline means DBS Group is no longer South-east Asia's largest lender by value.

According to Bloomberg, Jakarta-based Bank Central Asia overtook DBS this month with a market capitalisation of US$24.5 billion.

OCBC shares have dropped 15 per cent this year, while UOB shares have shed 10 per cent in the same period.

But industry watchers say the local lenders are fundamentally strong.

"Singapore banks are well positioned to face the current global economic headwinds, given their strong capital and provisioning buffers," said Mr Ng Wee Siang, a credit analyst at Fitch Ratings.

"Their profits will also provide another layer of strong buffer (against significant credit losses)," he said.

Unlike some global banks, Singapore lenders have not been on acquisition sprees in the past 10 years, and their leverage ratios are at a comfortable range of 12 to 13 times.

Nonetheless, worries about a slowing China and the risks of bad loans coming out of China, the oil and gas and other commodity-related sectors could continue to weigh on their share prices, said Mr Ng.

This article was first published on Feb 13, 2016.
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