This is how ASEAN NIMs will affect Singapore banks

NIMs are feared to remain under pressure.

According to Credit Suisse, much of the earnings optimism around Singapore banks post the 2Q13 results has been driven by the guidance from banks that NIMs are now probably closer to their cyclical bottom and could probably start improving in FY14.

Here's more from Credit Suisse:

This view has been further supported by the recent spikes in longer-term government bond yields, which in theory should help banks’ NIMs improve going forward. But looking at the underlying drivers in various markets, we believe the consensus might be getting too bullish about FY14 NIM prospects.

ASEAN NIMs to remain under pressure near term
The primary driver behind an improvement in Group NIMs could be a much better loan growth profile in regional markets relative to Singapore (which is the lowest NIM market for Singapore banks).

But given the increasing macro risks in the region, regional loan growth is unlikely to be much superior (partly market driven, but mostly due to banks' conservative approach) in the next few quarters.

Moreover, the NIM pressure in the regional markets could potentially experience further pressure in the near term.

Malaysia: Singapore banks are guiding that the pricing environment seems to be improving but funding pressure is still prominent.

According to the CS Malaysian banks’ analyst Danny Goh, most of the Malaysian local banks expect less NIM compression in 2H13 as funding cost pressure has eased and loan pricing competition has not intensified further.

Moreover, banks seem more focused on preserving credit quality and NIMs. With market leaders adopting risk-based pricing, we expect more rational pricing among industry players. Overall, while NIM compression is expected to subside, we are unlikely to see an expansion anytime soon.

Indonesia: NIM pressure expected to continue with a squeeze on both asset pricing and funding costs. Singapore banks, with their already high LDRs, are most likely to see further NIM pressure in the next few quarters. Higher policy rates might provide some cushion but tighter funding competition might erode the advantage.

Thailand: UOB expects some further NIM pressure in the near term, driven by tighter funding competition and its targeted higher pace of loan growth. Policy rate cuts might prove to be a further dampener on the prospects for a NIM recovery.