Banks

Banks: The three Singapore banks last reported a non-performing loan (NPL) ratio of 0.92%, close to their long-term lows. Historically however, a rise in NPLs has been positively correlated with falling property prices in Singapore. In the event that bad loans rise, safety margins (profit/loans) against them at the banks would be at historical lows and also the lowest in Asia, suggesting a higher risk to profits. A rise in the NPL ratio to 1.4-5% and a 15-20% drop in collateral value by FY15E could mean ~20% impact on DBS' profit, ~18% for OCBC's, and ~12% for UOB's. DBS remains UBS' preferred pick for now due to its steady earnings, but a reversal of the lower provisioning trend remains a risk.