SG Banks

Banks: The market is increasingly expecting SGD SIBOR to rise from the middle of next year, underpinned by the Fed rate rise. Maybank-KE believes rates will climb to 1% by end-2015 and 2% by end-2016, from the current 0.4%. However, with global inflationary pressures receding, commodity prices falling and the global economy still limp, there is less reason for a Fed rate rise, and a similar impact to the tightly-correlated SGD SIBOR rate. If rates remain unchanged until end-2015, DBS would see the most earnings downside, while UOB may be better insulated. Nevertheless, Maybank-KE expects the re-rating on banks to continue in 2015 on further earnings deliveries. The sector have already bucked low interest rates to deliver three quarters of positive earnings surprises. For exposure, DBS (Buy, TP $23.50) is its first choice, followed by UOB (Buy, TP $26.70). House remain cautious on OCBC (Hold, TP $10.70) over its Wing Hang Bank integration.