Singapore Banks

DMG & Partners Research on 3 Sept 2012

JULY business loans' growth of 1.2 per cent is unimpressive versus June's 2 per cent, and even much slower than May's 3.1 per cent. This dragged down overall July loan growth to 1.3 per cent from June's 1.7 per cent. Financial institutions recorded a relatively strong 3 per cent m-o-m loan growth, contributing to the business loan expansion. The numbers are in line with our expectations of slower loan growth. We expect slower loan growth of about one per cent m-o-m for the remaining months of 2012, as corporates become more cautious on their expansion plans.

Recent banks' results reaffirm our view that UOB's balance sheet is more robust, given its higher provisioning to loan ratio. As we expect systemic net interest margin compression and slower H2 2012 loan growth, we are "neutral" weight the banking sector. We noted UOB's share price underperformance over the past one month, and see this as an opportunity for investors to "buy" into the counter.

OCBC's share price may have fallen over the past month, but we see further downside, particularly given its relatively low provisioning ratio and risk of slower-than-systemic loan growth arising from reduced borrowing by Chinese corporates - a segment that contributed much to OCBC's 2011 loan surge.
Sector - NEUTRAL