Shares of Singapore banks are unlikely to perform well in the short term amid higher risks to the global economy, an analyst at Singapore-based DMG & Partners Securities said in a report on Tuesday.
Leng Seng Choon noted that since mid-August this year, Singapore's local banks -- DBS Bank, OCBC Bank and United Overseas Bank -- have posted share price declines of between 5 per cent and 8 per cent.
"However, we do not believe banks' share prices have bottomed, given the persistent macroeconomic issues in the US and EU, which could dampen loan expansion and raise concerns on asset quality," Leng said.
DMG saw no catalysts driving banks' share prices in the short-term, and was thus maintaining its neutral weight on banks.
Also, factoring in heightened risks, the securities firm was downgrading target prices to around one standard deviation below the historical price-to-book mean.
The brokerage identified UOB as its top pick with a target price of S$19.53.
UOB's total return year-to-date outpaced itspeers by falling 1 per cent, sharply better than DBS's negative 11 per cent and OCBC's negative 13 per cent, Leng noted.
"Despite that, we expect further UOB share price outperformance. UOB's conservative loan stance over the past 3 years and greater focus on housing loans will help to keep its asset quality high, and hence provisions low," he said.
The analyst warned that concerns on global economic growth will translate to weaker loan expansion for the local banking industry going forward.
DMG is projecting next year's loan growth for the fiscal year of between 8 per cent and 8.5 per cent, sharply lower than that of the forecast for the 16 per cent to 20 per cent forecast this year.
The securities firm was not revising its loan growth forecast but Leng noted "there remains the risk of further downside, particularly for corporate loans".