Impact of revised interest rates on bank customers

Now, Singapore today, with Lance Alexander and Daniel Martin, Singapore lender UoB says it's lowering the interest rates for its flagship savings account from next month, making it the first local bank to do so it comes as market expectations build up for the possibility of rate cuts. By the U.S. Federal Reserve in the next few months, UoB's one account provides tiered interest rates, similar to the flagship savings accounts offered by DBS and OCBC.

What are the implications of this, our banks forecasting interest rate cuts in the future?

Does this have implications for your housing loan as well?

Getting insights from Alfred Chia CEO of SingCapital, a financial advisory firm.

So this is interesting.

You will be sent out the letter to its customers and may the announcement of their social pages as well.

Is the first local bank to lower its interest rates for its savings account?

What does this mean?

Is this a sign that the lender is expecting the Fed to cut interest rates in the coming months?

Well, if you take a step back to look at what is the bank's essential business, which is to land out their deposit.

So therefore, they will always need to balance their cost of supply, which is the deposit.

And then, of course, the loans that they can actually give it up to.

And of course, one big chunk of the loans that banks give up to is housing loan.

And the property transaction has actually been quite slow over the last few months.

So this could also be an indication that the banks have too much deposit and they need to manage their costs.

And at the same time, maybe they are not able to land out the deposit as much as they want to.

Or they could be actually signaling that they are trying to start a very attractive loan package for homeowners.

OK, so you will be the first one to jump.

Do you think other banks in Singapore will follow suit?

I think it all depends on the respective banks' strategies and whether they are able to land out their deposit effectively to their targeted groups.

I mean, in addition to housing loan generally, the business loan side has also been slow.

Banks are a bit reluctant to land out to businesses because of certain uncertainties or certain sectors that were actually not able to fulfill the bank's requirements.

So therefore, it's really something that we need to monitor.

That's the macro perspective, Alfred.

But on the individual level, people might be saying, I am going to be earning less money from my deposits.

This is not very good.

Like, what does it mean for the individual?

Well, I think the banking sector is really very competitive.

I mean, you will be would have their strategic reasons to making their cards.

But there are also the new players like the digital banks.

They are also offering very attractive deposit rates.

And at the same time, they have less conditions, unlike the local banks.

Because you need to do salary credit things.

You need to swipe your credit cards, minimum amount.

At the same time, you must purchase investment.

So it may not actually get those kinds of interest rate that they publish.

OK, a lot of people are hoping that the Fed will cut its rates in 2024, maybe three times.

So do you think people should be waiting a little longer for a better bank interest rate if they want to borrow?

Now, it's very difficult to predict the interest rate trend, right?

I mean, of course, early this year, market consensus is that no Fed is going to cut three

times in the second half of the years.

But we have been actually questioning our clients, right?

Not to put in too much of such expectation.

Because inflation rate is still high in the US.

And in fact, the February data has shown that yes, actually, each higher.

So and of course, US Federal Reserve have also indicated that they are actually not in a hurry to cut the interest rate.

So it's our opinion that this year interest rate will stay high.

That could probably be one or two cards by the second half of the year, right, in order for them to, you know, engineer a soft landing of the economy.

And I think the expectation of a big card, I think, is not very practical.

Okay, Alfred Chia, he is CEO of SingCapital, which is a financial advisory firm.

Before making any decisions based on the information in our programme, please consult your own financial advisors to take into account your investment objectives, financial situation and individual needs.

Source:
CNA