Singapore Banks Sector - Likely a challenging 2H

2Q15 performance mostly in-line, despite weak loan growth
Singapore banks' 2Q15 performance was mostly in-line as weakening loan growth was more than offset by NIM improvements and strong momentum in noninterest income. DBS results were probably the best overall. UOB and OCBC performance were overshadowed by concerns over ASEAN asset quality. While managements appear confident about the resilience of their books, investors are unlikely to give them the benefit of doubt so soon.

2H likely challenging, ASEAN asset quality under the scanner
Outlook for top line remains mixed in 2H, with potentially weak loan growth and flat NIMs. Volatility in non-interest income and credit costs are likely to be key drivers. UOB's and OCBC's ASEAN exposure is likely to remain under the scanner, as any deterioration could increase earnings risks. At the outset, UOB appears better prepared with a bigger provision buffer. Better clarity on the US rate cycle could help gauge the NIM trajectory for Singapore banks, with DBS likely the biggest beneficiary on a relative basis.
DBS top pick; downgrade UOB to NEUTRAL
We revise our EPS estimates for Singapore banks by 1-7% mainly on lower net interest income assumptions. We also trim UOB's TP to S$24.50 (from S$28.00) and downgrade our rating to NEUTRAL (from Outperform) on increasing macro risks in ASEAN and the lack of near-term catalysts. DBS remains our top pick in the sector, as we expect its earnings to continue to outpace peers, and due to its lower ASEAN exposure-related risks and better leverage to higher rates. (Read Report)

Read Related Report
Singapore Banks Sector - 2Q system loan growth (-0.7% QoQ) weakest since GFC; mid single-digit growth the new normal
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- Credit Suisse Asia Pacific Equity Research
Singapore Banks - 2Q15 review: higher margin as positive offset to moderating growth
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- Deutsche Bank Markets Research
Singapore Banks - Expect normalization ahead. And more surprises.
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Source : Credit Suisse Asia Pacific Equity Research

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