Banks - CIMB

• DBS the best, UOB and OCBC within expectations. The banks’ 2Q came in

within expectations with common features being 1) accelerating loan growth; 2)
lower provisions; 3) widening capital buffers; but 4) stronger-than-expected margin
pressure. DBS stood out from the pack because it had an extremely strong trading
gains. OCBC missed our PPOP numbers as its costs spiked up unexpectedly.

• Revenue challenges await. Our impression from 2Q is that revenue challenges are
brewing. The lending business sees tentative credit demand as disintermediation is
a rising trend again. Tighter lending spreads and lower yields from investment
securities are weighing down on margins. Revenue growth opportunities lies in fees
but those opportunities could be somewhat blunted if capital markets remain edgy.

• Sector rated Overweight; top pick OCBC, least preferred DBS. The sector is
rated Overweight though as valuations have pulled back to almost -1sd from mean
P/BV and looks attractive relative to other cyclicals. Also, having gone through
Banking Crisis Round 1 two years ago and operating away from western markets
that still need to cope with de-leveraging, we believe that the Singapore banks will
hold up. Our top pick is OCBC (Outperform, TP S$10.08) as we expect it to be best
positioned to derive revenue growth. DBS (Underperform, TP $14.03) saw its 1H10
revenue growth supported by trading gains - that is inherently volatile - but, ROE still
lags behind peers even with the trading boost and goodwill write-off. It is our least
preferred. UOB (Outperform, TP $21.37) might be a near-term revenue growth
laggard, but the avoidance of low-margin loans could accelerate the regionalisation
strategy while the de-risking of its balance sheet is a positive.