The market narrative for 2026 was supposed to be a straightforward downtrend for global interest rates. Many people predicted that aggressive cuts by the US Federal Reserve would send the Singapore Overnight Rate Average (SORA) off a cliff, dragging down the net interest margins (NIM) and plunging earnings for our big three lenders: DBS, OCBC and UOB.
Yet, if you look at the Q1 2026 earnings reports that just cleared the tape, the catastrophic collapse simply didn’t happen. NIMs have compressed from their peaks, but the panic over banks has completely fizzled out. I discussed recently about the Q1 earnings from DBS, OCBC and UOB, about how each bank defended their net interest income and even grew their businesses under adverse conditions in Q1.
The changing macro environment could signal that earnings are done playing defense, and could be going back on offence with higher growth. Here's why I think so.
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| Image from https://housingloansg.com/hl/charts/sibor-sor-daily-chart |
SORA Finding A Trough?
The 3-month compounded SORA has experienced a sharp correction over the last twelve months, sliding from the 3.00%+ heights of the previous tightening cycle down to 1.00% to 1.10%. This drop directly matches the lag effects of the Fed’s easing cycle.
However, the downward momentum has hit a structural wall. Overnight SORA has spent the last few months stubbornly stuck in a range-bound pattern. The simple explanation being that global inflation is proving to be incredibly sticky.
With Brent crude oil climbing over USD 100 per barrel amid ongoing Middle East supply disruptions, imported inflation has forced central banks to pivot. In its April 2026 Monetary Policy Statement, the Monetary Authority of Singapore (MAS) made a decisive move: it increased the slope of the S$NEER (Singapore Dollar Nominal Effective Exchange Rate) appreciation path, slightly tightening policy to combat these external price pressures.
This creates a favourable economic setup for our banks:
- Yield Curve Stabilization: While MAS’s currency-based tightening doesn’t mechanically push local floating interest rates up overnight, it signals that the era of aggressive rate cuts is over. Banks are now factoring in a long plateau where SORA hovers around a 1.00% floor before drifting higher later into 2026.
- Wealth Inflow Multiplier: A strengthening SGD under a guided appreciation path acts as an absolute magnet for global capital.
When geopolitical uncertainty escalates, global ultra-high-net-worth (UHNW) families and institutions look for three things: political neutrality, absolute legal clarity, and a strong currency store of value. Singapore checks every box.
What I'm Watching Out For
So my thesis is that local interest rates have found a floor, and I am keeping an eye on these triggers to see if this thesis is going to hold true.
First would be the Q3 Singapore electricity tariff adjustments. If energy costs spike drastically from the Middle East supply lag, MAS may tighten the S$NEER slope further, which will support a structural rebound in SORA.
Second would be any shift in the US Fed's FOMC meetings and dot plot indicating that US rate cuts are frozen for the rest of 2026.
Other catalysts for our banks could include a rebound in China-ASEAN trade bringing cross-border institutional loan growth, as global electronics and AI-infrastructure capital is fully deploying across Malaysia, Vietnam, and Singapore. On the other hand, this aspect could turn out negatively due to global energy shocks causing economic slowdown in the region.
I would also want direct confirmation that banks are benefitting from SORA's recent trough and slight rebound. I would be waiting to see that sequential NIM compression has halted or reversed for each bank.
Verdict And Portfolio Movements
This year, I had accumulated shares of DBS at the price range of S$54-58, while also adding one tranche of UOB shares at S$36.
The market had mispriced the downside risks of the changing interest rates cycle, as Singapore banks have proven that they do not need 4% interest rates to print massive profits. DBS, OCBC and UOB spent the last year driving growth through earning premium wealth management fees, while defending their Net Interest Income through greater volumes of deposits and loans.
The banks have proven to be elite, resilient vehicles to compound my wealth and dividend income. I would be accumulating selectively on any geopolitical market pullbacks.
In the meantime, my dividends and other incomes could be used to accumulate blue chip REITs as the sector's outlook has dimmed and even heavyweights like CICT and FCT have seen a 10% correction from their recent highs. All Huat !!
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