DBS (D05.SG) is up 1.4% at $14.44 in anticipation of higher Sibor as recent rate hikes by Malaysia, South Korea central banks underpin expectations economies generally now on firmer footing, ready to increase borrowing costs, according to Dow Jones.

“The bank benefits tremendously from higher interest rates due to its large exposure to interbank lending and huge base of low-cost savings deposits,” says UOB KayHian, which has Buy call with $19.82 target; tips Sibor to rise 40 bp to 1.0% in 1H 2011 on potential 75 bp-100 bp hike in US Fed Funds Rate to 1.0%.

While DBS will have most to gain among Singapore banks from higher Sibor, its large exposure to inter-bank lending also makes it most vulnerable to weaker net interest margin when rates low, which largely explains stock’s underperformance in past months; down 6.9% since beginning May vs UOB (U11.SG) off 2.8%, OCBC (O39.SG) +2.0% over same period. Resistance at $15.00, last tested early May.