OCBC is DBS Vickers' preferred banking stock. OCBC HQ photo by Sim Kih

LOCAL BANKS are seen as low-risk due to Singapore’s capital strength and banking regulations but quite a few analysts are neutral or underweight on the sector.

Singapore’s government has undertaken to bear 80% of risks on loans to SMEs (up to S$5 million, from half a million) but analysts are pessimistic as Singapore’s predominantly export economy is highly vulnerable to the global recession. Exports were as high as twice that of GDP in 2007.

In comparison, China with its highly publicized factory closures owing to plunging export demand, exports only a third of its GDP.

To maker matters worse, history shows that loan growth collapses during recessions.

And official forecasts are for Singapore's GDP to contract 2%-5% in 2009.

Already, loan growth has slowed down to 16.6% year on year for Dec 08 compared to a historical peak of 26% in May 2008.
Other concerns include marked-to-market losses, poor fee prospects and rising provisions.

 Report DateBrokerRating
 4 Feb 09DBS VickersNeutral
 2 Feb 09Goldman SachsNeutral
 2 Feb 09CIMBUnderweight
 30 Jan 09CitigroupSell

OCBC will announce FY08 results next Wed (18 Feb) at lunch trading halt

OCBC is Singapore's second largest bank by group assets (S$183.6bn as of Sept 2008) and DBS Vickers Securities' preferred bank stock.

A balanced corporate, SME and consumer bank, OCBC has a leading position in life insurance and public housing mortgages, plus an orientation towards the mass market consumer.

Singapore contributes 67% of OCBC’s profit before tax, and Malaysia 25%.  OCBC also has investments in Indonesia, China and Vietnam.

DBS Vickers likes OCBC for its potential upside in its insurance business and possible net interest margin expansion from its Islamic banking business in Malaysia.

OCBC is trading at steep discount to consensus target price set by DBS Vickers, CIMB, Citigroup and Goldman Sachs.


 CIMB-GK Citigroup Goldman
 Consensus 10 Feb '09
Close Price
DBS $8.55  $8.82  $8  $9.45  $8.71  $8.25
OCBC $11.62  $5.50  $4.80  $6.20  $7.03  $5.01
UOB $4.98  $13.70  $10.50  $13  $10.55  $11.10

DBS is known for its focus on consumer banking. Photo by Sim Kih

DBS will announce FY08 results this Fri (13 Feb) before morning trading

DBS is Singapore's largest bank by group assets (S$260 billion as at Sept 2008).

The corporate and consumer focused bank is known for its treasury operations.

Singapore contributes about 62% to its group profit before tax, and Hong Kong 21%.  DBS also has exposure to several other parts of Asia, including Thailand, Taiwan, India and Greater China.

While DBS is most leveraged among the 3 local banks to economic recovery, it has under-performed its peers due to margin pressure concerns and CDO exposure.

DBS is trading at close to consensus target price.

UOB will announce FY08 results Fri (27 Feb)

UOB is Singapore's third-largest bank by group assets (S$181bn as of Sept 2008).

Primarily an SME and consumer-focused bank, UOB is exposed to a slowdown in SME loans, and provisions may rise.

While UOB has benefited from Singapore's 2006/07 mid-affluent private residential property recovery, the recent collapse in speculative residential property demand has led to a slowdown in mortgage growth in late 2008, according to Citi Investment Research.
Singapore contributes 70% of UOB’s profit before tax, and Malaysia 11%.  In recent years, the bank has made significant investments in both Thailand and Indonesia.

UOB is trading above consensus target price.

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