CNA Explains: Why are Singapore bank shares falling after a record run?

Singapore bank stocks plunged for the second consecutive day following a downgrade of OCBC by Citi. The downgrade lowered the bank's rating to "sell" and predicted flat third-quarter earnings compared to the previous year. Shares of OCBC fell 4.29% to S$29, wiping out over S$8 billion from its market capitalization after declining more than 5% the previous day.

UOB and DBS also experienced declines of 5.16% and 4.7%, respectively. This comes after all three banks hit record highs this year, raising questions about whether the sector's performance will be sustainable. Analysts attribute the pullback to profit-taking, rising bond yields, and concerns about higher funding costs due to increasing interest rates.

OCBC and UOB are expected to benefit more from rising rates, while DBS is considered a better choice for dividend safety. The analysts' differing opinions on the banks' valuations and growth potential highlight the need for investors to consider factors beyond rating calls, such as the Singapore Overnight Rate Average, economic outlook, and potential inflows into wealth management to sustain fee income growth.