The Singapore Banking Sector provides traditional lending and depository functions, as well as other services in the areas of commercial banking, financial advisory, asset management, insurance broking and capital market services.

Post Results Highlight

Net Interest Margins

• DBS NIMs up 2bps, OCBC and UOB down 6bps in 1Q13.
• NIMs expected to stabilize moving forward
• Mortgage pressure to remain in the short term, but overseas contributions, which have higher NIMS, are expected to mitigate NIMs pressure.

Loans growth outlook

• Loans grew in the mid-high single digits in 1Q13
• DBS increase FY2013 guidance to low double digit, OCBC and UOB maintains single digit growth guidance
• FY2013 Net interest income growth to be muted

Fees and Commission

• Fees and commission growth strong from increased market related activities, although some are nonrecurring. UOB guides 15% y-y growth for FY2013
• Wealth management, Trade related and Loan related fees, expected to be revenue driver
• Gaining traction from stronger client relationships, wide range of product offerings, and rising wealth.

Non Interest income (Non II)

• Non II continues to be volatile, DBS 1Q13 Non II strong
• Non II may continue to surprise on the upside in FY2013

Other areas

• Expenses continue to be well managed
• NPL remains low with no credit quality concern

Investment actions

While the banks continue to be strong fundamentally, we forecast limited upside potential due to high share price and marginal growth potential. We downgraded DBS and UOB to “Neutral” in our respective 1Q13 results report, while maintaining our “Reduce” call on OCBC. Share price of the banks have since declined in-line with the STI. We expect to upgrade the sector once valuations are attractive.

• DBS Group Holdings Ltd - Neutral; Price Target: $17.20
• Overseas Chinese Banking Corp - Reduce; Price Target: $8.70
• United Overseas Bank - Neutral; Price Target: $21.35

Source: PhillipCapital Research - 5 Jun 2013