DBS is a high-beta play

Monday, July 20, 2009

DBS is a high-beta play on the eventual economic recovery. It derives the bulk of funding from savings accounts (DBS: 42.5%, OCBC: 19.2% and UOB: 22.0%), where cost of funds is relatively stable. It is the largest lender with S$28.3b parked in the interbank market. DBS will experience the most significant improvement in NIM when the economy recovers, which is usually accompanied by higher interest rates.

DBS focuses on organic growth in its core Singapore and Hong Kong markets. There is latent growth potential in Singapore as its Singapore-dollar loan-deposit ratio was only 57.4% as at Mar 09. DBS is a leader in providing financial services to large corporate and institutional clients and intends to expand market share in SME and consumer lending.

Valuation is attractive with a P/B ratio at 1.13x, the lowest among Singapore banks (OCBC: 1.42x and UOB: 1.52x).


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