Singapore Banks – Direct proxies to the strong economy

DBS will be the first among the big three local banks to release its 2Q10 results on 30 July, followed by OCBC on 2 August and UOB on 10 August. We expect UOB to outperform its peers on account of its cost discipline and falling provision charges. In our view, the banks’ 2Q results could surprise on the upside due to loan growth and lower provisioning amid rapidly improving Asian economies. With Singapore’s GDP expected to grow 13-15% this year, surpassing the peak in 2007, the local banks will be the direct beneficiaries of the robust economy. Our top pick is UOB, which stands out for its superior ROE, capital strength and earnings stability. We would also recommend accumulating DBS as the stock currently trades at just 1.3x P/BV, one of the lowest in the region, but offers the highest dividend yield of 4.3%.