Contents
Interest income supporting operating profit 3
We believe further improving loan spreads in Singapore, coupled with a durable
pricing cycle, market-share gains and a shift to low-cost deposits, will support net
interest income, and hence PPOP, over the next two years.
Strong interest income growth 3
Consistent with pricing for a recession 4
A durable pricing cycle 5
Further supported by deposit mix shift 5
Volume growth is less important than margin 6
Bad debt cycle: Stress testing TCE 8
Stress testing suggests that TCE could tolerate a rise in bad debt charges to 300bp,
well ahead of any realistic expectations. The recovery in financial institution bond
prices further reduces the risks to TCE. The sector remains surplus capital
generative.
Bad debt charges remain a ‘known unknown’ 8
Stress testing tangible common equity 8
Receding risk of writedowns 10
Capital surplus generation suggests TCE could grow 12
Look through 1Q09 weakness 13
1Q09 results are likely to be universally weak and we forecast an average 51% yoy
and 16% qoq profit decline. Look through these numbers to signs of an earnings
recovery in the second half of 2009F and into 2010F.
1Q09 could show further weakening 13
Look out for the following 13
Dashboards 15
Company profiles 21
DBS Group Holdings 22
OCBC 28
United Overseas Bank 34