Singapore Banks

Maybank Kim Eng Research, Dec 18

WITH the odds of the US Federal Reserve tapering its quantitative easing programme on the rise, interest rates are set to rise. The implications will manifest in banks' net interest margin (NIM), asset quality and loan growth. In this report, we conduct a sensitivity analysis on earnings assuming a one percentage point change in loan growth, a 5bps rise in NIM and a 5bps increase in credit charge (as a proportion of net loans).

Based on our estimates, every 5bps increase in NIM will raise FY2014-15 forecast EPS of our universe by 4 per cent on average. The earnings uplift is significant after the past few years of depressed NIMs ...

DBS is our top sector pick. Of the three Singapore banks under our coverage, we believe DBS is best positioned to take advantage of a rising interest rate environment, given its liquid balance sheet and strong deposit franchise with cheap funds accounting for 58.4 per cent of total deposits. We have a "buy" call on DBS with S$19.70 target price, based on one time FY2014 forecast core EPS, a slight premium to its rolling PE average since 2005.

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