Latest data for 1Q14 reflects solid household balance sheets that are able to withstand tremendous stress.

It would take a 40% plunge in the combined valuation of homes, shares and securities for household leverage to revisit historical peak.

Maintain Overweight on banks. DBS remains our top sector pick, followed by UOB. Stay cautious on OCBC.

Strong household balance sheets

The official data for the quarter ended 31 March 2014 suggests solid household (HH) balance sheets, characterised by record HH wealth, comfortably low HH leverage (HH debt accounts for 16.3% of HH assets) and a more cashed-up HH sector with cash hoard (ex-CPF contributions and pension funds) in excess of debt.

As safe as a house

Based on our estimates, it would take a 40% plunge in the combined valuation of homes, shares and securities for household leverage to revisit its record high of 21.1%. This suggests the underlying strength of household balance sheets, providing significant safety nets for Singapore banks in the event of an economic fallout. The proactive steps taken by the authorities since Sep 2009 to curb residential property speculation should also help to contain any potential slippage on the housing loan front.

Maintain Overweight on banks. For exposure, DBS is our top pick as it is best positioned to take advantage of a rising interest rate environment. We would remain cautious towards OCBC.

Source: Maybank Kim Eng Research - 3 Jun 2014