Banks attract inflows as investors exit riskier Gulf markets

Wealth and deposit inflows from risk-averse investors may cushion weaker net interest income.

Singapore’s banks are getting an unexpected boost from investors and high net worth individuals seeking stability amidst the Middle East conflict.

The city’s domestic stability and resiliency is expected to continue attracting liquidity fleeing instability and fragility overseas.

“Heightened geopolitical uncertainties have reinforced Singapore’s safe-haven appeal, driving deposit growth and wealth management inflows into local banks, particularly from Middle East-based clients reallocating assets away from perceived riskier jurisdictions in the Gulf region, such as Dubai,” said Jonathan Koh, analyst at UOB Kay Hian (UOBKH).

These inflows will support balance sheet liquidity and fee-based income. Private banking and trading activities will benefit the most.

Banks are expected to maintain resilient earnings as a fall in net interest income would be offset by growth in fee income, particularly wealth management fees, Koh said.

Banking stocks offer attractive yield plays given the current low-interest rate environment in Singapore, he said.

However, further escalation of conflict in the Middle East continues to be a risk.

“The conflict in the Middle East could lead to elevated inflation through energy and trade channels, although the persistence would depend on the scale and duration of the skirmishes,” Koh said.

Military disruptions and shipping insecurity would raise global oil, gas and fertiliser prices, feeding directly into headline inflation and indirectly into core inflation via higher transportation, manufacturing and food costs, he warned.\