Contents
Structural positives intact, but cyclical upside probably priced in 3
Asian bank shares rose 4-45% qoq in 3Q on GDP upgrades and steady asset
quality. As central banks shift their policy focus from managing a crisis to managing
a recovery, our strategy focus has moved more towards a bottom-up, individual
bank basis.
3
3Q09 review 3
Theme of the quarter: Do Asian banks have the capacity to grow loans? 8
We believe most Asian banks’ core capital positions should be sufficient to support
loan growth of 6-19% in 2010. However, if loan growth exceeds expectations and
regulators tighten capital requirements (eg China), some banks may need to raise
capital.
8
Forward-looking themes 8
Macro and company-specific scorecards for Asian banks under our coverage 13
Macro policies could remain accommodative in India and Thailand over the next
three to six months, despite inflation pressure, but may tighten in China, Singapore
and Korea. We also rate individual banks by outlook for capital raising, margins,
provisions and M&A.
13
Bottom up drivers 13
Valuation, review of regional top 10 portfolio 16
As the cycle of interest rate cuts ends alongside an economic recovery, our revised
regional top 10 focuses more on the relative beneficiaries of interest rate rises,
banks with potential to positively surprise on lower bad debt charges, and low
valuation plays.
16
Portfolio review 16
Investment cases for our regional top 10 picks 18
Key risks 26
Apart from the obvious ‘economic double-dip’ risk, we think key risks for Asian
banks include negative perception of lower new loans in China in 2010, a change in
regulations on capital and asset markets, and more provisions for developed market
banks.
26
Downside risks 26
Appendix: Regional financials valuations 27