Singapore Banks - UBS

Lack near-term catalyst
􀂄 Downgrade OCBC and UOB to Neutral
Singapore bank share prices have rebounded by an average of 26% from the lows
of Q108 and are now trading near their 10-year average PE and P/book valuations.
This rebound, together with little room for earnings forecast upgrades post the
result season and the lack of near term catalysts, leads us to believe that it will be
difficult to command a valuation premium, and thus we are downgrading our
ratings for OCBC and United Overseas Bank (UOB) from Buy to Neutral. We
maintain our Buy rating for DBS Bank.
􀂄 Moderation in second half
Core earnings in Q108 met market expectations, but it was also clear that the very
strong loan growth recorded in the past few quarters is likely to moderate, an
outcome of slower global economic growth and the banks themselves exercising
caution in this environment.
􀂄 Interest rate will be the key
We think the key to further upside potential to earnings rests with the direction of
interest rates, which have fallen 100bp YTD. We are assuming no recovery in 2008
but, should they rebound, it would mean better margins and earnings.
􀂄 Buy DBS
We believe the market has been cautious towards DBS as it is the prime casualty of
falling rates and also because of concerns over the performance of its large
Treasury division in these tough markets. We believe the lower rates are fully
priced in and that there is scope for improvement with loan spreads widening while
the improvement in the capital markets in recent weeks suggests the worst is over
for Treasury earnings.