Banks: Daiwa initiated on the sector positively, citing that earnings growth is underpinned by margin expansion in the banks' core lending businesses.
House expects Singapore banks to be the major beneficiaries of the imminent decoupling of asset (and non-interest income) growth rates, which are set to slow, and interest rates, which are set to rise in response to the US Fed’s actions.
Rising interest rates are a positive for these banks and would widen their net-interest margins (NIMs), with asset yields rising more than their core deposit costs.
At current forward P/E and P/B valuations, all banks are trading below their 10-12 year mean levels and, with the exception of OCBC, have not reached 1SD below these mean levels.
Pecking order: DBS (Buy, TP $23.60), OCBC (Buy, TP $11.80) and UOB (Outperform, TP $21.30).
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