Here's what boosted Singapore's impressive GDP in 2Q

Why OCBC is a better choice.

Not long ago, analysts claimed that DBS would be a better choice of investment than OCBC and UOB. Reasons given were:

A1) Singapore Government's cooling measure housing market would hurt  the local banks. Since DBS is diversified  across Asia, it would be less exposed to the impact of the cooling measure than banks (OCBC & UOB) who are mostly based in Singapore.

A2) DBS investment outside Singapore, gives it better growth opportunity.

A3) High amount of housing loans hold by Singapore Banks  risk turning into large amount of Non Performing Loan when interest rate hike inevitably- claimed by  Moody.

In my opinion, the above points are not the full story and a decision based upon those might be distorted.    Allow me to  share the reason why  pure local banks  are better selections.

1) Cooling Measure VS Economic Crisis 

  The worry about more property cooling measure to come, is a needless one. After some 7 rounds of cooling measure, property price and transaction volume  are beginning to fall. Since the government policies has taken effect and reach its aim of cooling the market, it makes no sense to continue hammering the market with new measures. In fact we can expect government to start removing those measure as soon as interest rate starts moving up-  most probably after  1 year.  Removing those cooling measure is necessary to  increase the liquidity of housing market and allow those  investors cannot afford the high interest rate  to  sell their properties.  The next question that comes naturally would be: Why would government want to help those investors who can't afford high interest rate? Well, those investors pledged their properties when apply for housing loan. If they can't afford the rising interest rate their properties and can't sell   their properties, their properties  would be seized and sell in the market. When such cases happened to large amount of investors, we can quickly see the market flooded with worthless properties while banks see many loan turn bad and collateral turn worthless-  a repeat of  US 2008 subprime crisis. As a small country, the economic  resulting hardship would be unbearable. Thus government would its best to prevent such crisis and a necessary step would be to increase the liquidity of the property market once interest rate starts hiking.

In constrast, the risk of economic disruption as a result of fund exiting Asia would prove to be more worrying. This is especially true for developing countries like Vietnam, Indonesia, and India- check out news about India  struggle to  hike interest rate  in order to  fight  currency devaluation.  If not handled properly, the history of 1997 currency crisis would repeat itself and companies in the those countries would simply go bust. In all these developing Asian countries, DBS has stake in them and thus it run a high risk of suffering a huge loss should anything happened to these countries. Thanks to the smart polices by MAS, Singapore is expected to weather such economic disruption and thus" pure" Singapore banks are expected to be spared from the crisis.  Strong policies that  MAS  have imposed to protect the  economy include appreciation of SGD to its all time high and  agreeing to accept Japanese bonds as collateral.

2) The Real  Opportunity To  Growth   

Growth opportunites offered in other Asian countries are truly debatable. In the bid to protect their economy, most countries have imposed strong protectionism policies on  their fianacial industries.  These protectionsim policies limit the growth and competitiveness of foreign banks. A good example can be seen from the recent case where Temasek Holding faced  tons of hurdles when it  tried to sell shares of Indonesia's Danamon Bank to DBS. What is a growth opportunity when you can't even cash out?

On the other hand, Singapore as a financial hub for South East Asia and with its strong economic stability offer much more attractive growth opportunity for the local banks. Foregin business  preferred to set up in Singapore and foreign funds flow first into Singapore then to the rest of SEA countries.We can safely assume this will continue  to be the case for at least the next 5-10 years. Thus banks who focus more on local market are expected to grow better than bank who seek growth in other SEA countries.

3)  MAS's ACE Card

  As always Moody tends  to exaggerate  " crisis" that is unlikely to happen and  comfort you when there is  real crisis lurking (2008 subprime is a good example).  Crisis as a result of high amount of housing debt  is UNLIKELY to happen in Singapore. As mentioned above, the cooling measure can be removed to improve liquidity in the market, this provides opportunity for those who cannot afford the rising interest rate to exit the market. Secondly, government's plan on increasing the population by 2020 should also provide ample demand to balance the supply in propety market. Most importantly, MAS has an ACE card up its sleeve that will allow it to buy some time before rising the local interest rate- inevitably Singapore interest rate is highly pegged to US interest rate, which is expected to rise when Fed stops it QE by mid 2014.  Remember the " All time high SGD" we are talking about? The high SGD gives MAS more flexibility and room in choosing to devaluate SGD over increasing interest rate. This  delay the need to rise local  interest rate, and should give sufficient time for property investors to be warned of the rising rate and to liquidate their properties. Thus the crisis warned by Moody is high avoidable and should not be of major concern.

In a nutshell, with the low economic risk and high growth opportunity, Singapore financial  market is a much better investment than many SEA market. With this I concluded that banks that focus on local markets (OCBC & UOB) will fare much better than bank (DBS) that is diversified across the volatile Asia markets. As for why OCBC is preferred over UOB, it is because size does matter.

Just sharing my view here, email me rosesyrup123@yahoo.com if you have something to share with me. Thanks.

The above analysis is purely my personal opinion. I urge you to do your own assessment and calculation for any relevant decision making purposes.

Author: Rosesyrup

  03 May 2013 10:19 GMT

Why UOB's stellar 1Q performance may unfortunately be a one-off event

In line with the other two banks, UOB Group  posted 1Q13 net earnings which also exceeded street expectations. 1Q net earnings of S$722m were up 5% YoY and 4% QoQ and ahead of consensus of S$688m based on Bloomberg poll.

While Net Interest Income fell 4% YoY and flat QoQ to S$964m, its overall performance was buoyed by higher Non-Interest Income, which rose 12% YoY and 13% QoQ to S$708m. Together with lower operating expenses, this gave its operating profit a boost to S$976m. Net Interest Margin (NIM) fell from 1.98% in 1Q12 and 1.76% in 4Q12 to 1.70% in 1Q13.

Loans grew a healthy 7.4% from last quarter to S$167b. Impairment charge fell QoQ from S$150m to S$130m. 

The key highlight was the strong 17% QoQ or 25% YoY increase in Fee and Commission Income to S$453m in 1Q13. On a QoQ basis, several units enjoyed strong double-digit growth. This included loans (+63%), fund management (+19%) and Investment (+18%).