UBS Investment Research on Singapore Banks

UBS Investment Research
Singapore Banks
Expect better loan growth
! 2005 loan growth at 2.2%
The month of December ended with loan growth of 2.2% (YoY), compared with
0.9% in November. The stronger number was primarily due to the turnaround in
the manufacturing sector, which saw credit expand by 3.2% versus flat to
negative growth in preceding months.
! Strong economy to underpin loan growth
Economic growth in the past several months has surprised on the upside
underpinned by exports and domestic demand. We remain sanguine on the 2006
outlook and we expect this to translate into 6% loan growth while the interest rate
cycle should support better margins.
! Lower growth in immediate months
While we expect 2006 to end with the strongest loan growth we have seen in the
last six years, in the immediate months growth is likely to be flat or negative
because of mortgages. We look for mortgages, which make up 34% of total loans,
to moderate further because of fewer property transactions in 2003 and early 2004.
! Our picks
DBS in our view is in a strong position to benefit from the reflating economy
while OCBC with a high level of Tier 1 capital is a leading candidate for capital management exercises.
1 February 2006