BROKER CALL- DBS main gainer from interest income spike on SIBOR rise-Merrill
Topic 1AFX - AsiaBROKER CALL- DBS main gainer from interest income spike on SIBOR rise-MerrillMarch 2, 2005 WednesdayMerrill Lynch said DBS among the island nation's leading banks will likely be the key beneficiary of an upward trend in the SIBOR (Singapore Interbank Offered Rate) that should boost banks' loan yields. Other leading banks OCBC and UOB should also gain from better yields but concerns about overall pressure on their bottom line performances for 2005 prompted Merill to cut the former's target price to 15.00 sgd from 15.20 and the latter's to 15.50 sgd from 16.00. "We continue to assert our expectation that rising rates will change the competitive dynamics of the Singapore market in favor of banks with large bases of savings deposits," Merrill Lynch research head Tony Raza said in a research note. Both foreign and local banks alike have indicated the need to boost rates for home mortgages to track the rising three-month SIBOR, which has risen to 1.9 pct from 1.4 pct at end-2004. Local banks have an edge given their huge savings bases used to fund their loans while foreign banks largely rely on the interbank market for funds. "The banks that will benefit the most are the one with the largest combination (of) large home loan portfolios and (mortgage)funding based on savings deposits," he added. DBS remains Merrill Lynch's top pick among the three banks, noting that the stock's heavy underperformance since its disappointing fourth quarter results was overdone. Merrill Lynch has an 18.00 sgd target price for DBS. It said that DBS is likely to see the most benefit from the rising interest rates, having the largest housing loan exposure among the three banks.
