According to Credit Suisse, S’pore banks will see stronger loan growth this year as economy improve but margins will remain under pressure given continued low interest rates. Loan growth may reach 15% in 2010 vs previous forecast of 11%-12% with earnings +2% for every +5% in lending. Asset quality should also benefit with possibility of positive surprises on the credit cost front.
On flip side, margin pressure expected to remain as Sibor still near historical lows of 0.55% and unlikely to pick up near term amid view that Fed will start raising rates only from early 2011; This should temper margin expansion expectations for local banks, which continue to suffer from compressing loan and interbank spreads. Keeps DBS, OCBC as Outperform with respective targets of $17.70, $10.25 and UOB at Neutral with $23.00 target.
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