Singapore Banks

DMG & Partners Research on 1 Aug 2012

JUNE 2012 overall loan growth of 1.7 per cent m-o-m is weaker than May's 2.2 per cent, but remains respectable. Strength remains in business loans, which rose 2.0 per cent m-o-m. Consumer loans expanded 1.4 per cent m-o-m. We had earlier highlighted the May loan strength was likely a blip, and the slower June loan growth is in line with our view. We see weakening loan strength moving forward, as the EU issues slow investments.

Our top pick UOB had the best share price appreciation, and further upside is expected. We believe the upcoming Q2 2012 bank results will be in line with consensus expectations. However, higher provisions could surface in H2 2012, and continued narrow net interest margin is not a positive. Hence, "neutral" weight the banking sector.

Despite UOB's outperformance, it remains our best pick, given its balance sheet strength. UOB's historically conservative stance remains intact - a positive in the current economic downcycle. We intend to upgrade UOB's target price after its results' release.

The recent Bank Indonesia announcement points to a higher likelihood of DBS given the approval to acquire Bank Danamon. This could potentially be negative for DBS's share price in the short term.
Sector - NEUTRAL